ECON-205 Ch.10 Notes

ECON-205 Ch.10 Notes - Chapter 10 Supply-Side Equilibrium:...

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Chapter 10 Supply-Side Equilibrium: Unemployed or Inflation? Important Concepts The price level is determined by both aggregate demand and aggregate supply. Aggregate supply does not refer to a fixed number, but rather to a schedule (an aggregate supply curve) Profit per unit = price – cost per unit Firms decide how much to produce by comparing their selling prices with their cots of production. The aggregate supply curve slopes upward because firms normally can purchase labor and other inputs at prices that are fixed for some period of time. Thus, higher selling prices for output make production more attractive The most obvious determinant of the aggregate supply curve’s position is the nominal wage rate. An increase in the money wage rate shifts the aggregate supply curve inward, meaning that the quantity supplied at any price level declines. A decrease in the money wage rate shifts the aggregate supply curve outward, meaning that the quantity supplied at any price level increases. The aggregate supply curve is shifted inward by an increase ion the price of any input to the production process, and it is shifted outward by any decrease. Improvements in productivity shift the aggregate supply curve outward. As the labor force grows or improves in quality, and as investment increases the capital stock, the aggregate supply curve shifts outward to the right, meaning that more output can be produced at any given price level. Nominal wages rates, prices of other inputs, technology, labor force, and capital stock are
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This note was uploaded on 04/30/2008 for the course ECON 205 taught by Professor Kamrany during the Fall '07 term at USC.

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ECON-205 Ch.10 Notes - Chapter 10 Supply-Side Equilibrium:...

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