Chapter 22 outline

Chapter 22 outline - Chapter22: I II III a = supplied b...

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Chapter 22: Aggregate Demand and Supply Analysis I. Equilibrium in Aggregate Demand and Supply Analysis a. Equilibrium aggregate output and the price level occurs at the point where  quantity of aggregate output demanded = quantity of aggregate output  supplied b. Two types of equilibrium: long run and short run II. Equilibrium in the  Short-Run a. AD: aggregate demand curve b. AS: aggregate supply curve c. E: equilibrium d. Y*: equilibrium level of output e. P*: equilibrium price level e.i. Equilibrium is only a useful concept if there is a tendency for the   economy to head towards it f. Price level above equilibrium: f.i. Quantity supplied > quantity demanded f.ii. Excess supply/surplus f.ii.1. prices will fall g. Price level below equilibrium: g.i. Quantity supplied < quantity demanded g.ii. Excess demand/shortage g.ii.1. Price level will rise III. Equilibrium in the  Long-Run a. Equilibrium can move over time if Y* =  Y n.  b. (if production costs change, aggregate supply will shift) c. SRAS will not remain stationary if aggregate output and unemployment  differ from their natural rate d. Y > Y n : d.i. Tight labor markets = increased wages d.ii. Production costs rise d.iii. SRAS shifts LEFT e. Y < Y n : e.i. Labor markets slack = decreased wages e.ii. Production costs fall e.iii. SRAS shifts RIGHT f. Only when output and unemployment are at their natural rates is there no  pressure from the labor market for wages to rise or fall (no reason for  SRAS to shift) g. Self-Correcting Mechanism: g.i. Regardless of where output is initially, it eventually returns to the 
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This note was uploaded on 03/30/2012 for the course ECON 2035 taught by Professor Stahl during the Spring '08 term at LSU.

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Chapter 22 outline - Chapter22: I II III a = supplied b...

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