ECON 102 Lecture Notes - Lecture 22: Aggregate Supply, Aggregate Demand, Longrun
Document Summary
New additions to capital stock or new replacements for capital stock that has worn out. New factories, houses, retail stores, construction equipment, and wireless networks. Buying or building an asset in the expectation of financial gain. It does not distinguish between new assets and old assets. Unlike economic investment: financial investment is either financial assets (such as stocks, bonds, and futures contracts) or real assets (such as land, factories and retail stores) Interest is paid, not only on the original amount invested, but also on all interest payments that have previously been made. From the short run to the long run. Input prices (wages) are inflexible to flexible prices - assume fixed wage contracts. Input prices are fully flexible and price is flexible. From the short-run as to the long-run as. Demand-pull inflation occurs when an increase in aggregate demand pulls up the price level. In the short run, demand-pull inflation drives up prices and output.
