This preview shows page 1. Sign up to view the full content.
Unformatted text preview: ate Supply Curve
LongRun Aggregate Supply
The longrun aggregate supply curve, LRAS, depends upon:
the amount of labor, L,
the amount of capital, K , and
the total factor productivity, A.
The level of aggregate output supplied at the natural rate of
unemployment is referred to as:
the natural rate of output, or as
potential output, Y p . Lecture 16 – Phillips Curve & Aggregate Supply: R. J. Hawkins Econ 100B: Macroeconomics 24/ 36 The Aggregate Supply Curve ShortRun Aggregate Supply
The shortrun aggregate supply curve, SRAS, is derived from the
shortrun Phillips curve by replacing:
the unemployment gap, U
the output gap, Y UN , with Y P. And to justify that empirically we need Okun’s Law. Lecture 16 – Phillips Curve & Aggregate Supply: R. J. Hawkins Econ 100B: Macroeconomics 25/ 36 Okun’s Law
Casual empiricism of the relationship between GDP and unemployment. 20 2.0
∆ Unemployment
GDP Growth Rate 1.5 10 1.0 5 0.5 0 0.0 5 0.5 10 1.0 15 1.5
60 70 80 90 00 10 Source: FRED / BEA, BLS TIME (year)
Lecture 16 – Phillips Curve & Aggregate Supply: R. J. Hawkins Econ 100B: Macroeconomics 26/ 36 ∆ UNEMPLOYMENT (%) GDP GROWTH RATE (%) 15 Okun’s Law
Gap Version: (Ut UN ) ⇡ 0 .5 Y t YP Y P courtesy of the IMF 4
UNEMPLOYMENT GAP (%) 3
2
1
0
1
2
3
4
6 4 Source: FRED / BEA, BLS 2 0 2 4 6 GDP GAP (%/year) Lecture 16 – Phillips Curve & Aggregate Supply: R. J. Hawkins Econ 100B: Macroeconomics 27/ 36 The ShortRun Aggregate Supply Curve
Derivation
Given the modern Phillips curve
⇡t = ⇡t ! ( Ut 1 UN ) + ⇢t and Okun’s law
( Ut UN ) = ⇣ 0.5 Yt via substitution we get
⇡t = ⇡t 1 Y P ⌘ ⇣
+ 0. 5 ! Y t ⌘
Y P + ⇢t or the shortrun aggregatesupply curve:
⇣
⌘
⇡t = ⇡t 1 +
Yt Y P + ⇢t
Lecture 16 – Phillips Curve & Aggregate Supply: R. J. Hawkins Econ 100B: Macroeconomics 28/ 36 The Aggregate Supply Curve
LRAS from the SRAS
The shortrun aggregatesupply curve
⇡t = ⇡t
or ⇡t becomes, as ⇡t 1 ⇢t 1 ⇣
= Yt + ⇣ YP Yt ⌘ ⌘
Y P + ⇢t ! 1 (i.e. complete wage & price ﬂexibility),
Yt = Y P which is the longrun aggregate supply curve. Lecture 16 – Phillips Curve & Aggregate Supply: R. J. Hawkins...
View
Full
Document
This note was uploaded on 09/08/2013 for the course ECON 100B taught by Professor Wood during the Summer '08 term at University of California, Berkeley.
 Summer '08
 Wood
 Phillips Curve

Click to edit the document details