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Unformatted text preview: -when price increase, wages are sticky then “real wage” decreases-recall labor market-in equilibrium, unemployement rate=natural rate-then real GDP=potential GDP-when price increases, “real wage” decreases-then unemployment rate < natural rate-which means real GDP>potential GDP-so in SR, when price increases, so does Real GDP-in SR, Price increase, move along SRAS-Why? “real wage” decreases-so firms can produce more-in Long run wages not stickey-wages increase-this will shift SRAS-So in LR, real GDP=potential GDP-only change in economy is that prices are higher-keynesian exonomies ar concerned with temportary “burst” in real GDP-When LRAS shifts to right, economic growth 1) Increase in full employement quality of labor a. When LD=LS farther to right, increase in LRAS 2) Increase in capital or technology a. Increase in LRAS...
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This note was uploaded on 12/12/2008 for the course ECON 29486 taught by Professor Denniswilson during the Fall '06 term at Western Kentucky University.
- Fall '06