Short run aggregate supply-
-this is the period in which wages (and other input prices) remain fixed as price level increase or decrease.
long run aggregate supply-
-period of time in which wages have become fully responsive to changes in price level.
****Remember how crucial worker salaries o a businesses out out and bottom line when considering effects on aggregate supply******
effects over short run-
-in the short run , price level changes allow for companies to exceed normal out puts and hire more workers because profits are increasing while wages remain constant.
-in the long run , wages will adjust to the price level and previous output level will adjust accordingly.
equilibrium in the extended model-
-the extended model means that both the short run and long run AS curves.
- the long AS curves is represented with a vertical line at full employment level of real GDP.
Demand pull inflation in the AS model-
- demand pulls (to the right) which causes prices to increase based on increase in aggregate demand.
-in the short run , demand pull will drive up prices , and increase production
-in the long run, increase in aggregate demand will eventually return to previous levels.
Cost push and the extended model-
-cost push (to the left) arises from factors that will increase per unit costs such as increase in the price of a key resource.
dilemma for the government-
-in and effort to fight cost push, the government can react in 2 different ways:
1. action such as spending by the government could begin an inflationary spiral.
2. no action however could lead to recession by keeping production and employment levels declining.
I am not sure whether or not you are aware of this since I do not see it anywhere on your blog, but in the business cycle there is no knowing when we are in a trough or in a peek. It isn't until it is over that we can analyze the past and decide whether we just went through a recession or expansion. Right now, for example, our gas prices are going up. We can't correctly assume that we are going through a trough or if it is just the the short term demand being higher than the supply. I hope this helped!
ReplyDeleteI think you cover Aggregate demand and aggregate supply very well. Did you know that when cost-push inflation shifts the aggregate supply line to the left,it is the cause of price level increases, and not the effect? Just an interesting thing to add!
ReplyDeleteWow great notes! Remeber that in the short-run, examples of events that shift the aggregate supply curve to the right include a decrease in wages, an increase in physical capital stock, or advancement of technology. And don't forget that the supply curve slopes upward because marginal costs increase with the greater quantity supplied in the short run. With a competitive market, the supply curve will be a summation of the individual firms' supply curves.
ReplyDeleteAs price increases, the quantity supplied will also increase, indicating a positive relationship between price and quantity supplied. The SAS curve is upward sloping because firms tend to increase price levels when demand increases and because in auction markets there are upward sloping supply curves. Just thought this might be additional, beneficial information.
ReplyDeleteGreat job of covering the notes for this particular section of unit 5. Do not forget to add visuals to further enhance the learning experience.
ReplyDeleteCost-push inflation basically means that prices have been "pushed up" by increases in costs of any of the four factors of production when companies are already running at full production capacity.
ReplyDeleteYou take great notes that explicitly gets to the point, but don't forget to add videos to elaborate more of the topic at hand, especially cost push vs demand pull inflation. It could help out a lot of people. Nevertheless, good job!
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