26Chp22-Econ3310 - Aggregate Supply Equilibrium Analysis...

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Unformatted text preview: Aggregate Supply Equilibrium Analysis Fluctuations in technology, i.e. shifts of LRAS! . Real supply shocks drive short-run fluctuations in the natural rate of output Y n Policy implication: no need for government intervention! We don’t observe Y = Y n at all times, so what causes business cycles? Answer: Real business cycle theory (Edward Prescott) New-classicals: Prices and wages are flexible, economy is always on LRAS and SRAS = LRAS. The natural rate of output is determined by factor accumulation (labor and capital) and the stance of technology, i.e. long-run economic growth: Little or no role for monetary policy and fiscal stabilization. Shifts in Long-Run Aggregate Supply (LRAS) Aggregate Demand ...
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This note was uploaded on 02/14/2012 for the course ECON 3310 taught by Professor Dix during the Fall '08 term at York University.

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