Notes Week 8
Notes Week 8 Econ 253-101
Popular in Principles of Macroeconomics
Popular in Economcs
verified elite notetaker
This 3 page Class Notes was uploaded by Kayla Notetaker on Friday October 16, 2015. The Class Notes belongs to Econ 253-101 at Marshall University taught by Dr. Yuanyuan (Catherine) Chen in Fall 2015. Since its upload, it has received 24 views. For similar materials see Principles of Macroeconomics in Economcs at Marshall University.
Reviews for Notes Week 8
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 10/16/15
Macroeconomics 253 1 Ch 13 cont An increase an Aggregate Demand shift to the right means 0 Interest rates have decreased 0 Government purchases G have increased 0 Taxes have decreased 0 HHs expectations on future income and f1rm s expectations of future pro tability have become optimistic o The growth rate of domestic GDP compared to foreign GDP has decreased 0 The exchange rate has decreased Aggregate Supply There are two Aggregate Supply curves Long Run Aggregate Supply LRAS and Short Run Aggregate Supply SRAS o Long Run Aggregate Supply a vertical line that shows the relationship in the long run between the price level and the Quantity of Real GDP supplied 0 Referred to as potential GDP or F tillEmployment GDP 0 Real GDP is determined by the number of workers level of technology and the amount of capital stock K 0 Changes in Price Level do NOT affect the level of GDP in long run An example of the difference between the different curves discussed is shown below LRAS Price SRAS Level AD Real GDP 0 Short Run Aggregate Supply upward curve describes relationship between the Proce Level and the Quantity of goods and services firms are willing to supply eetems paribus all else equal 0 As the price levels increase the Quantity of goods and services firms are willing to supply will increase also 0 As prices of nal goods and services rise price of inputs workers wages price of raw material rise more slowly 0 Some firms are slow to adjust their prices as prices levels increase or decrease It is believed that firms and workers fail to predict changes in Price Level accurately There are three popular explanations as to how this makes the SRAS curve go upward 0 Contracts make some wages and prices sticky when prices and wages are said to be sticky this means they do not respond quickly to change in supply or demand 0 Contracts hold deals constant since workers and firms cannot accurately predict changes in Price Level they do not correctly build long term contracts and risk future losses Macroeconomics 253 2 0 Firms are often slow to adjust wages many wages and salaries are xed those that aren t get adjusted annually If price levels increase before the annual adjustment profitability of hiring and producing more output rises while it has the opposite affect if prices levels are decreasing 0 Firms also do not like cutting wages bad for morale can cause valued workers to quit and look for new employment 0 Menu Costs make some prices sticky part of how firms set their prices is based on what they expect future prices to be Alternating prices of some items that you previously set a price for can be costly 0 Ex Having to print small changes in price in a restaurant s menu the cost of remaking all the menus might cost more than it s worth Shifts along the ShortRun Aggregate Supply Curve VS Movements If the price level changes while other variables stay constant that would cause a shift either up or down along the curve If anything else changes it will cause a shift either left or right For instance price SRASz An increase in Capital Stock means a firm can Level produce more output with more workers at any price level causing the rightward shift a SRAsl Positive Technological change also causes a rightward shift as more efficient technology increases productivity while keeping the firms cost of production the samereduced Real GDP price SRASz If workers and firms expect the future Price level to Level change they will try to adjust wages and prices For example if they expect an increase of 2 the SRAS1 leftward shift will shift by the same amount ceterus paribus When predictions of price level changes are wrong workers and firms must compensate If adjustments Real GDP are made to a price level that was higher than expected the SRAS curve will shift to the left It will shift to the right if adjustments must be made to a price level that was lower than expected If the price of an important natural resource rises the cost of producing outputs will rise and therefore shift the SRAS curve to the left Macroeconomics 253 3 The LongRim Macroeconomic Equilibrium We expect that the economy will produce at the level of Potential Full GDP LRAS So the Long Run Macroeconomic Equilibrium occurs when Aggregate Demand and Short Run Aggregate Supply intersect at the Long Run Aggregate Supply Level LRAS RA53 GDP SRASL Deflator 39 SRASZ At Point A is the Equilibrium 6 x A D 1 AD3 Potential Real GDP GDP Unexpected Change in Price of Resources Supply Shock unexpected event that causes the SRAS curve to shift right or left depending on the direction of the change 0 If the uneXpected change in input price is an increase the SRAS curve will shift to the left 0 This is also known as a negative supply shock 0 If the uneXpected change in input price is a decrease the SRAS curve will shift to the right 0 This is also known as a positive supply shock o Negative supply shocks are more common than positive 0 Sudden increased shifts cause Stag ation inflation combined with recession GDP LRAS SRASZ Deflator SRAsl Price Level B A Real GDP 0 With a lower level of output people become unemployed and products go unsold Lower expectations about future prices means GDP LRAS SRA51 0 Workers accept lower wages D fl e ator SRAS2 0 Firms decrease prices Just to sell product Price Level 0 SRAS shift to the right B Real GDP
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'