Chapter 22 econ.docx - Chapter 22 Aggregate Demands and Supply Analysis Autonomous increases in C I G or Xn or a looser monetary policy not related to a

Chapter 22 econ.docx - Chapter 22 Aggregate Demands and...

This preview shows page 1 - 2 out of 3 pages.

Chapter 22- Aggregate Demands and Supply Analysis Autonomous increases in C, I, G, or Xn or a looser monetary policy not related to a change in inflation shifts the curve to the right Phillips Curve the aggregate supply curves are based on the expectations augmented Phillips Curve: inflation = pi e + w(U-Un) The starting point is Un: the “natural” unemployment This natural rate of unemployment is due to the severe heterogeneity of jobs and workers and may be divided into frictional and structural components The unemployment rate, Y, will be greater than the natural rate, Un, when the real wage is too high and less than Un when the real wage is too low relative to that equilibrium value Wages will rise faster when the labor market is tight and U < Un or expected inflation is high o When wages rise faster, costs rises faster and inflation is higher o The aggregate supply curve combines the Phillips curve with the inverse relationship betweem unemployment and output. For a given capital stock and technology, output will depends on the amount of labor employed Long Run Aggregate Supply Curve based on inflation = pi e + y (Y-Y p ), based on the question “what output would be produced at various inflation rates if that rate were sustained and came to be expected ( pi = pi e ) Regardless of the value for inflation, Y will equal Y p (hence a vertical curve in inflation, Y space) Short Run Aggregate Supply Curve based on inflation = pi e + y (Y-Y p ), given the inflation expected for the future, what output will be produced at different levels of current inflation? Given pi e , the greater inflation is, the greater Y will be – hence an
Image of page 1
Image of page 2

You've reached the end of your free preview.

Want to read all 3 pages?

  • Winter '18
  • houston

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask ( soon) You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors