aggregate demand and supply

Level of real gdp in the long run potential gdp the

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Level of real gdp in the long run = potential GDP The curve shows long run relationship between price level and quantity of real GDP supplied The LRAS curve is a vertical line at the potential level of real GDP.
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Short-Run aggregate Supply Curve It tells us the relationship between the price level and the qty of goods and services firms are willing to supply, holding all variables constant. Explaining an upward sloping SRAS curve when workers and firms fail to predict changes in the price level. - contracts make some wages and prices sticky - firms are often slow to adjust to wages - menu costs make some prices sticky Variables that shift the short run Aggregate Supply Curve - Increases in the labor force and in the capital stock : firms supply more output at every price level -> SRAS shift to the right - Technological change : productivity of workers and machinery increases decrease firms costs of production and allow them to produce more output at every price level. shift SRAS to the right - Expected change in future price level : if firms and workers expect price level to increase by a certain percentage, the SRAS will shift by an equivalent amount - Adjustments of workers and F to errors in past expectations about price level
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