prices and wages - Foreign price levels(when foreign prices...

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Foreign price levels (when foreign prices levels fall relative to US prices, US goods & services become more expensive reduces exports & boosts imports reduced agg demand Trade policies (who wants to trade more with who) Reduction in one of the components of aggregate demand shifts curve to the left Multiplier – The ratio of the change in the quantity of real GDP demanded at each price level to the initial change in one or more components of aggregate demand that produced it Multiplier = Δ (real GDP demanded at each price level) / initial Δ (component of AD) Aggregate Demand and Supply in the Short-run Short run – in macroeconomic analysis, a period in which wages and some other prices are sticky and do not respond to changes in economic conditions Prices (wages) do not adjust quickly enough to equilibrium levels Sticky Price - A price that is slow to adjust to its equilibrium level, creating sustained periods of shortage and surplus Wage & price stickiness prevent the economy from achieving its natural level of employment & its potential output Long run – in macroeconomic analysis, a period in which prices and wages are flexible
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