Aggregate Supply
Aggregate Supply
- The level of real GDP that firms produce at each price level
- Long Run - Period where input $ are flexible & adjust to change in PL
- Real GDP is independent to PL
- Short Run - Input prices are rigid; they do not adjust
- LRAS - Shows full employment (analogous to PPC)
- Vertical @ full employent
Changes in SRAS
- An increase is represented as a shift to the right
- A decrease is represented as a shift to the left.
- Changes are based on cost of production per unit (Total input cost/total output)
- Determinants:
- Input Prices
- Domestic resources $ [75% on wages, Capital cost, Raw material]
- Foreign resource $
- Market Power ... Increase shifts left; Decrease shifts right
- Productivity - (Total output/total input)
- More productivity -> Low unit prod. $ -> SRAS shifts right
- Less productivity -> High unit prod. $ -> SRAS shifts left
- Legal Institution Environment
- Taxes & Subsidies
- Taxes shift SRAS left
- Subsidies shift SRAS right
- Gov. regulation
- Regulation causes cost of compliance = SRAS <-
- Deregulation reduces compliance costs = SRAS->
- FE equilibrium occurs when AD crosses SRAS & LRAS @ same point
- Recessionary Gap - Occurs when equilibrium is below FE output
- Inflationary Gap - Equilibrium is above FE output
- SRAS
- Nominal Wages - Amount of $ received by worker per unit of time
- Real Wages - Amount of goods/services worker can buy with nominal wages
- Sticky Wages - Set nominal wages from initial price levels
- Does not vary because labor contracts etc.
No comments:
Post a Comment