Lecture 16 Notes

Lecture 16 Notes - ECN 211 Macroeconomic Principles L16:...

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03/03/10 1 ECN 211 Macroeconomic Principles L16: Aggregate Supply and Equilibrium.
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Short-run Vs Long run Short-Run – Costs of production (inputs) are held  constant – Wage contracts etc have been determined and can not  change. Nominal wages are fixed – Resource prices  “are sticky” Long-Run – All costs of production (inputs)  can vary 03/03/10 2
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03/03/10 3 Aggregate Supply (AS) ……The aggregate supply curve shows the amount of  output  (real GDP) produced (supplied) at  different price levels
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Why the (short run) AS curve slopes upwards In the short-run we are assuming the costs of production  (inputs)  remains constant As the price level ( of output increase  businesses  will  produce  more  output. Profit motive creates an incentive for firms to increase  production. The  “real wage”  paid by firms to workers has  fallen  03/03/10 4
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03/03/10 5 The (short-run) AS Curve SRAS Price level Real GDP (dollars) P O Q 1
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03/03/10 6 The (short-run)AS Curve- Alternative look SRAS Price level Real GDP (dollars) P O Q 1
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Determinants of SRAS Resource/Input prices – The SRAS is drawn for a  given set of input prices – If input prices 
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Lecture 16 Notes - ECN 211 Macroeconomic Principles L16:...

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