ECON 105 Chapter Notes - Chapter 24: Output Gap, Nominal Rigidity, Potential Output

• School: Simon Fraser University
• Department: Economics
• Course: ECON 105
• Professor: Seong- Jun Choi

Document Summary

Chapter 24: from the short run to the long run: the. Assume: factor prices are assumed to be exogenous. May change, but not explained within the model: technology and factor supplies are assumed to be constant. Y* is constant: ad and as curves are still subject to shocks, but now the level of real gdp fluctuates around a constant y* Assume: factor prices are assumed to adjust in response to output gaps (endogenous, technology and factor supplies are assumed to be constant (exogenous) Explain how deviating from y* will cause wages and other factor prices to adjust. In the short-run version, the adjustment process is assumed to take place with a constant level of potential output. Assume: factor prices are assumed to have fully adjusted to any output gap (endogenous, technology and factor supplies are assumed to be changing. Second assumption tells us that the level of potential output is growing.