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Using AS and AD Analysis

Using AS and AD Analysis - o if prices are lower than...

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Using AS and AD Analysis From Last Time Why does Y stand for output? Is it standard? Why not Y? Why is the SRAS curve upward sloping? The upward slope indicates that the aggregate production of goods and services increases as the price level rises. Misperceptions of relative and general price level changes and menu costs are two explanations for the upward slope. Shifts of the SRAS Curve 1. costs of production 2. expectations of future prices o anticipated higher prices shift SRAS curve up to left o anticipated lower prices shift SRAS curve down to right o if prices are higher than anticipated, output increases
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Unformatted text preview: o if prices are lower than anticipated, output decreases Shifts of the LRAS Curve 1. quantity of capital and labor 2. productivity Neutrality of Money An increase in AD shifts the AD curve up to the right. Equilibrium moves from point A to B in the short run as prices were higher than expected. Costs will eventually rise as well. So, the SRAS curve will shift up to the left. Long-run equilibrium is always on the LRAS curve at potential GDP. • money is neutral - has no effects on the real variable Y and the level of employment...
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