Chapter 11 the macroeconomic long run is a time frame

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Chapter 11 The macroeconomic long runis a time frame that is sufficiently long for the real wage rate to have adjusted to achieve full employment: Real GDP equals potential GDP. Unemployment is at the natural unemployment rate. The price level is proportional to the quantity of money. The inflation rate equals the money growth rate minus the real GDP growth rate. The macroeconomic short runa period during which some money prices are sticky so that Real GDP might be below, above, or at potential GDP. The unemployment rate might be above, below, or at the natural unemployment rate.
The quantity of real GDP suppliedis the total quantity that firms plan to produce during a given period. It depends on The quantity of the labor employed The quantity of physical and human capital State of technology We distinguish two time frames associated with different states of the labor market: Long-run aggregate supply Short-run aggregate supply Long-runaggregate supply is the relationship between the quantity of real GDP supplied and the price level when real GDP equals potential GDP. Potential GDP is independent of the price level. So the long-run aggregate supply curve (LAS) is verticalat potential GDP. Short-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the money wage rate, the prices of other resources, and potential GDP remain constant. A rise in the price level with no change in the money wage rate and other factor prices increases the quantity of real GDP supplied. The short-run aggregate supply curve (SAS) is upward sloping. It is upward sloping because A rise in the price level with no change in costs induces firms to bear a higher marginal cost and increase production; and A fall in the price level with no change in costs induces firms to decrease production to lower marginal cost. When potential GDP increases, both the LASand SAScurves shift rightward. Potential GDP changes, for three reasons: The full-employment quantity of labor changes The quantity of capital (physical or human) changes Technology advances Aggregate demandis the relationship between the quantity of real GDP demanded and the price level. The aggregate demand curve (AD) plots the quantity of real GDP demanded against the price level. The ADcurve slopes downward for two reasons: A wealth effect & Substitution effects A rise in the price level, other things remaining the same, decreases the quantity of real wealth (money, stocks, etc.). To restore their real wealth, people increase saving and decrease spending, so the quantity of real GDP demanded decreases. Similarly, a fall in the price level, other things remaining the same, increases the quantity of real wealth. With more real wealth, people decrease saving and increase spending, so the quantity of real GDP demanded increases.

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