ECN 204 Chapter Notes - Chapter 16: Aggregate Supply, Aggregate Demand

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ultramarinecrab956

7 Apr 2017

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Ecn 204 chapter 16 long run macroeconomic adjustments. Immediate objective is to demonstrate the relationship between short run aggregate supply and long run aggregate supply. The curve as1 is based on 3 assumptions: (1) the initial price level is p1. (2) nominal wages have been established on the expectation that this price level will persist. (3) the price level is exible both upward and downward. The economy is operating at its full employment output gdpf. This output is the real production forthcoming when the economy is operating at its natural rate of unemployment. Need to extend the analysis of aggregate supply to account for changes in nominal wages that occur in response to changes in price level. An increase in the price level from p1 to p2 will move the economy from point a1 to a2 along the short run aggregate supply curve as1.

Related Questions

Suppose an economy is in long-run equilibrium. The central bank raises the money supply by 5 percent. what causes the economy to move from its short-run equilibrium to its long-run equilibrium?

1. The government increases taxes to curb aggregate demand.

2. Nominal wages, prices, and perceptions adjust upward to this new price level.

3. The government increases spending to increase aggregate demand.

4. Nominal wages, prices, and perceptions adjust downward to this new price level.

orchidhornet724

1. If the price level doubles and the real output doesn't change, then nominal output also doubles.
2. Inflation makes it less difficult to interpret the information conveyed by prices.

3. Laissez-faire economists oppose government intervention in the market process.

4. Active demand management policies are based on the work of JohnMaynard Keynes.

5. In the AS/AD model, as the price level rises, the real value of assets increases, causing consumption to increase. This is one reason why the aggregate demand curve slopes down.

6. The short-run aggregate supply curve is upward sloping in part because increases in aggregate demand cause some firms to increase their price markups.

7. If productivity and wages both raises by 3 percent, then the short-run aggregate supply curve does not shift.

8. The long-run aggregate supply curve is vertical because all prices adjust in the long run.

9. If the economy is not in long-run equilibrium and other things are equal, then prices will eventually adjust to bring the economy to long-run equilibrium.

10. Most economists agree that it is possible for fiscal policy to fine-tune the economy.

bluewolf591

Oil Price Shocks
Both the long-run aggregate supply curve and the short-run aggregate supply curve shift in response to changes in the availability of labor or capital or to changes in technology and productivity. A widespread temporary change in the prices of factors of production, however, can cause a shift in the short-run aggregate supply curve without affecting the long-run aggregate supply curve.

Tasks:
Suppose there is a temporary but significant increase in oil prices in an economy with an upward-sloping Short-Run Aggregate Supply (SRAS) curve. If policymakers wish to prevent the equilibrium price level from changing in response to the oil price increase, should they increase or decrease the quantity of money in circulation? Why?
APA guidelines, standards, and formatting.

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ECN 204 Chapter Notes - Chapter 16: Aggregate Supply, Aggregate Demand

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