ECO102H1 Lecture Notes - Nominal Rigidity, Potential Output, Output Gap
45
ECO102H1 Full Course Notes
Verified Note
45 documents
Document Summary
Chapter 24 from the short-run to the long-run. The level of real gdp fluctuates around a constant level of potential output, y*. This version of our macroeconomic model is convenient to use when analyzing the economy over short periods. Even though factor prices, technology and factor supplies are rarely constant, event over short periods of time. Note to that, as in the short run version of the model, the adjustment process is assumed to take place with a constant level of potential output. Our theory of macroeconomic adjustment process is useful to examining how the effects of shocks or policies defer in the short run and long runs. As we will see, the assumption that potential output is constant leads to the prediction that ad and as shocks have no long-run effect on real gdp; output eventually returns to y*.
