BUSAD 120 Chapter Notes - Chapter 1: Nominal Rigidity, Market Failure, Human Capital
Document Summary
Changes in un or natural rate of unemployment. Changes in physical capital or human capital. Changing weather patterns that affect agricultural production. Over the period of 1 2 years, an increase in p causes an increase in the quantity of goods and services supplied. The positive slope of the sras is the key to understanding short-run fluctuations. If as is vertical, fluctuations in ad do not cause fluctuations in output or employment. If as slopes up, then shifts in ad do affect output and employment. In each theory there is some type of market imperfection (maybe better explained as some type of confusion) Output deviates from its natural rate when the actual price level deviates from the price level people expected: the sticky-wage theory. Nominal wages are sticky in the short run. They adjust sluggishly due to labour contracts, social norms, etc.
