01:220:103 Chapter Notes - Chapter 11: Price Level, Aggregate Supply, Aggregate Demand

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rubyclam909

2 Nov 2018

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Aggregate supply - the total supply of all goods and services in an economy. Aggregate supply (as) curve - a graph that shows the relationship between the aggregate quantity of output supplied by all firms in an economy and the overall price level. In the long run, price adjustments across all inputs and outputs will fall into line. If all prices (prices of products and of labor) doubled simultaneously, there would be no change in output. Vertical as curve (mirrored in the long run as curve) In reality, wages tend to respond more slowly to a demand change than prices, so the short run as curve slopes upward instead of vertical. As curve is not the sum of all individual supply curves. Price/output response curve is a more accurate name: traces out the price decisions and output decisions of all firms in the economy under different levels of aggregate demand.

Related Questions

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

Determine the effect on either the aggregate demand curve (is it a rightward or a leftward shift?), the aggregate short-term supply curve, and the long-term aggregate supply curve (does the upward sloping portions of the SAS curve shift left or right, or does the vertical portion of the LAS curve shift to the right or the left?). Also determine the effect on the price level, the real output level, and employment/unemployment. Explain and express this graphically using the AS/AD macro model.

In late 2004, oil prices increased sharply while the rate of growth in labor productivity declined. The combination of these two factors should shift the short-run aggregate supply curve up (left). The increase in oil prices, when combined with the slowdown in productivity growth, will likely result in higher costs for firms at each output level. To offset these higher costs, firms increase their prices at each output level, causing the short-run aggregate supply curve to shift up (left).

crimsonturtle166

The short-run aggregate supply curve slopes upward because of all of the following reasons except:

A. in the short run, prices of final goods and services adjust slowly due to the existence of menu costs.

B. in the short run, an unexpected change in the price of an important resource can change the cost to firms.

C. in the short run, as prices of final goods and services increase, input prices react more slowly.

D. in the short run, as prices of final goods and services increase, some firms are very slow to adjust their prices, thus their sales increase.

sapphirejackal278

01:220:103 Chapter Notes - Chapter 11: Price Level, Aggregate Supply, Aggregate Demand

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