Chapter 10 - Chapter 10: Aggregate Supply and Aggregate...

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Chapter 10: Aggregate Supply and Aggregate Demand I. Long Run is long enough so that the real wage rate can adjust to achieve full employment a. Real gdp = potential gdp b. Unemployment rate = natural unemployment rate c. Price lvel determined by the quantity of money d. Inflation rate = money growth rate – real gdp growth rate II. Aggregate Supply a. Depends on: a.i. Quantity of labor employed a.ii. Quantity of physical and human capital a.iii. State of technology b. Relationship between quantity of real gdp supplied and the price level b.i. Long Run b.i.1. Quantity of real gdp supplied equals potential gdp, same despite price levels b.i.2. Vertical line at potential gdp “LAS” b.i.2.a. Vertical because potential gdp is independent of the price level b.i.2.b. Real wage rate stays constant at its full employment eqm level because an increase in price is matched by an increase in money wage rate b.ii. Short Run b.ii.1. Relationship between quantity of real gdp supplied and the price level when the money wage rate, the prices of other resources, and potential gdp remain constant b.ii.2. Upward sloping b.ii.2.a. A rise in the price level brings an increase in the quantity of real gdp supplied b.ii.2.b. Money wage rate is unchanged b.iii. Intersection of LAS and SAS: where quantity of real gdp supplied equals potential gdp and the real wage rate is at full employment eqm level b.iv. Changes b.iv.1. Incease in potential gdp increases LAS and SAS and shifts both curves right b.iv.1.a.
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Chapter 10 - Chapter 10: Aggregate Supply and Aggregate...

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