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18 Cards in this Set
- Front
- Back
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aggregate supply |
a schedule or curve showing the relationship between a country’s price level and the amount of real domestic output that firms in the economy produce |
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aggregate supply (cont.) |
• In the immediate short run, both input and output prices are fixed. • The short run, input are fixed but output vary. • The long run, input and output prices vary |
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aggregate supply in immediate short run |
it last as long as both input and output prices are fixed |
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aggregate supply in the short run |
the short run begins after the immediate run ends. It is a period of time during which output prices are flexible, but input process are either fixed or highly inflexible |
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aggregate supply in the long run |
the time horizon over which both input and output prices are flexible. It begins after the short run ends |
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changes in aggregate supply |
when either the price level or output level change the curve will shift rightward if the supply indicating firms are willing to produce and sell more output at each price level |
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domestic resource prices |
• salaries make up to 75 % of all business cost. • labor supply increases because of substantial immigration. • labor supply decreases because of rapid increase in pension income causes many older workers to opt for early retirement • the price of machinery and equipment falls because of declines in the prices of steel and electronic components. • the price of land and natural resources expands as a result of discovery or technical innovations that transform non resources |
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imported resource prices |
foreign goods typically reduce per unit production cost and the AS shifts to the right |
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productivity |
the second major determinant of AS is a measure of the relationship between a nation’s level of real output and the amount of resources used to produce that output |
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productivity formula |
total output / total input |
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legal institutional enviroment |
changes in this determinant of AS may alter the per unit cost of output and shift the AS curve |
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changes in taxes and subsidies |
higher taxes will increase per unit cost and reduce the short run AS the same as wages |
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changes in the extent of regulation |
more regulation tends to increase per unit production costs and shift the AS downward |
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changes in equilibrium |
• the economy is operating at full employment output and business and government decide to increase their spending actions •Businesses may increase their IG in capital goods to increase their profit • Decreases in AD result in the opposite end of the cycle , recession and cyclical unemployment |
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this decrease will result in a Recession which will result in a downward price stickiness: |
• Fear of Price Wars • Menu Cost: lowering cost creates other cost. • Wage Contracts may make it impossible to reduce cost |
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cost push inflation (decrease in AS) |
price increases an unanticipated economic shock results in a shift to left or decrease as a result of the increase in price |
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full employment with price-level stability(increase in AS) |
combination of full employment, strong economic growth and very low inflation results in a shift to the right and increase in production |
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equilibrium GDP (cont.) |
- it is the level at which the total quantity of goods produced (GDP) equals the total quantity of goods produced - equals the total quantity of goods produced - there is no over production nor is there an excess of total spending, which would draw down inventories of goods and prompt increases in the rate of production - savings and planned investment- there are no Unplanned changes in Inventory |
