EC140 Chapter Notes - Chapter 26: Capital Accumulation, Macroeconomics, Output Gap
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EC140 Full Course Notes
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The aggregates supply and demand curve explain how real gdp and price level are determined and how they interact. The quantity of real gdp supplied is the total quantity of goods and services, valued in constant base year dollars, that firms plan to produce during a given period. This quantity depends on the quantity of labour employed; the quantity or physical and human capital; and the state of technology. The quantity of capital and the state of technology are fixed; they depend on decisions that were made in the past. Aggregate supply is the relationship between the quantity of real gdp supplied and the price level. There is: long term aggregate supply, and short run aggregate supply. The relationship between the quantity of real gdp supplied and the price level when the money wage rate changes in step with the price level to achieve full employment.