Aggregate Supply

Aggregate Supply - shocks Formulae Aggregate supply = Y =...

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Aggregate Supply Terms and Formulae Terms Output - Goods and services produced by workers and firms. Positive Supply Shocks - Economic changes that suddenly and drastically decrease the cost of inputs and thus shift the aggregate supply curve to the right. Price Level - The overall cost of goods and services in an economy. Real Wage - The amount of money paid to a worker in terms of purchasing power, not actual currency. Stagflation - A condition where the price level increases and output decreases. This usually results from an adverse supply shock. Supply Shock - An economic change that suddenly and drastically affects the cost of inputs and thus shifts the aggregate supply curve. C.f. adverse supply shocks and positive supply
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Unformatted text preview: shocks. Formulae Aggregate supply = Y = Ynatural + a(P - Pexpected) In this formula Y is output, Ynatural is the natural rate of output that exists when all productive factors are used at their normal rates, a is a constant greater than zero, P is the price level, and Pexpected is the expected price level. Aggregate demand = Y = C(Y - T) + I(r) + G + NX(e) In this formula, Y is output, C(Y - T) is consumption as a function of disposable income, I(r) is investment as a function of the real interest rate, G is government spending, and NX(e) is net exports as a function of the real exchange rate....
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