Ch13 SH - 1- The Aggregate Supply CurveThe Aggregate Supply...

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Unformatted text preview: 1- The Aggregate Supply CurveThe Aggregate Supply Curve: A WarningAggregate Supply in the Short RunShifts of the Short-Run Aggregate Supply Curve- The Equilibrium Price Level- The Long-Run Aggregate Supply CurvePotential GDP- Monetary and FiscalPolicy EffectsLong-Run Aggregate Supply and Policy Effects- Causes of InflationDemand-Pull InflationCost-Push, or Supply-Side, InflationExpectations and InflationMoney and Inflation Sustained Inflation as a Purely Monetary Phenomenon- The Behavior of the FedControlling the Interest RateThe Feds Response to the State of the EconomyFed Behavior Since 1970Inflation TargetingAggregate Supply and the Equilibrium Price Level2The Aggregate Supply CurveAggregate supplyThe total supply of all goods and services in an economy.Aggregate supply (AS) curveA graph that shows the relationship between the aggregate quantity of output supplied by all firms in an economy and the overall price level.An aggregate supply curve in the traditional sense of the word supply does not exist. What does exist is what we might call a price/output response curvea curve that traces out the price decisions and output decisions of all firms in the economy under a given set of circumstances. 3The Aggregate Supply Curve: Aggregate Supply in the Short RunIn the short run, the aggregate supply curve (the price/output response curve) has a positive slope.At low levels of aggregate output, the curve is fairly flat.As the economy approaches capacity, the curve becomes nearly vertical.At capacity, the curve is vertical.4The Aggregate Supply Curve: Shifts of the Short-Run Aggregate Supply CurveCost shock, orsupply shock A change in costs that shifts the short-run aggregate supply (AS) curve.5The Equilibrium Price LevelThe price level at which the aggregate demand and aggregate supply curves intersect.At each point along the AD curve, both the money market and the goods market are in equilibrium. Each point on the AScurve represents the price/ output decisions of all the firms in the economy. Pand Ycorrespond to equilibrium in the goods market and the money market and to a set of price/output decisions on the part of all the firms in the economy. 6The Long-Run Aggregate Supply CurveWhen theADcurve shifts from ADto AD1, the equilibrium price level initially rises from P0 to P1and output rises from Yto Y1....
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This note was uploaded on 02/02/2012 for the course ECON 201 taught by Professor Shea during the Spring '08 term at Maryland.

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Ch13 SH - 1- The Aggregate Supply CurveThe Aggregate Supply...

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