The positive slope of the short-run aggregate supply curve, reflecting the direct relation between the price level and real production, results for three primary reasons--inflexible resources, frictional and structural unemployment, and purchasing power imbalances.
What are the determinants of aggregate supply?
Y*t = f (Lt,Kt,Mt )
- Aggregate Production
- Aggregate Supply
- Potential Output
What causes aggregate supply to increase?
What are the factors affecting aggregate demand and aggregate supply?
- Net Export Effect. …
- Real Balances. …
- Interest Rate Effect. …
- Inflation Expectations. …
- Supply Shocks. …
- Resource Price Changes. …
- Changes in Expectations for Inflation. …
- Capacity Increase.
What causes shifts in aggregate supply?
- Higher interest rates. Inflation leads to higher interest rates in the long run.
- Lower exports.
- Lower savings.
- Mal-investments.
- Inefficient government spending.
What are some examples of aggregate supply?
The Short Run
- Short-Run Aggregate Supply. The economy shown here is in long-run equilibrium at the intersection of AD1 with the long-run aggregate supply curve.
- Reasons for Wage and Price Stickiness. Wage or price stickiness means that the economy may not always be operating at potential. ...
- Equilibrium Levels of Price and Output in the Short Run. ...
Why is the aggregate supply curve upward sloping in the short run quizlet?
The short-run aggregate supply curve is upward-sloping because it takes some time for input prices and/or wages to adjust.
What are three reasons the short run aggregate supply curve slopes upward?
While the aggregate supply curve is perfectly vertical in the long run, it is upward sloping in the short run. There are three theories that try to explain why suppliers behave differently in the short run than they do in the long run: the sticky wage theory, the sticky price theory, and the misperceptions theory.
Why is the aggregate supply curve horizontal in the short run?
This is because capital, which encompasses assets such as buildings and machinery, takes time to implement. Also, as wages are assumed to be static in the short run, increases in labor only result in increased quantity, but not price. This is why the SRAS curve is almost horizontal at this stage.
Which of the following describes why the short-run aggregate supply curve is upward sloping but the long run aggregate supply curve is vertical?
Which of the following describes why the short-run aggregate supply (SRAS) curve is upward sloping but the long-run aggregate supply (LRAS) curve is vertical? Some expectations are incorrect in the short run, but all expectations are correct in the long run.
Which aggregate supply curve has a positive slope?
The upward-sloping aggregate supply curve—also known as the short run aggregate supply curve—shows the positive relationship between price level and real GDP in the short run.
Why is the short-run aggregate supply curve shaped the way it is quizlet?
Why is the short-run aggregate supply curve shaped the way it is? Prices of final goods and services change more quickly than input prices. In the short run, the supply curve slopes upward, meaning that as the prices of final goods and services increase, firms are willing to produce more output.
What does short-run aggregate supply curve show?
The short-run aggregate supply curve is an upward-sloping curve that shows the quantity of total output that will be produced at each price level in the short run. Wage and price stickiness account for the short-run aggregate supply curve's upward slope.
What does it mean when aggregate supply is horizontal?
A horizontal aggregate supply curve means producers will not supply goods at a lower price anymore.
Why is the aggregate supply curve vertical in the long run?
The long-run aggregate supply curve is vertical because, in the long run, resource prices adjust to changes at the price level, which leaves no incentive for firms to change their output. In the long run, prices and wages have no effect on the aggregate supply curve.
When would an economy have a horizontal SRAS curve?
Under what conditions would an economy have a flat SRAS curve? It tells you that real GDP and the price level are not related. This could happen when there are a lot of unemployed resources or a constant price level as in a recession or depression. 6.
Can sras be horizontal?
Aggregate demand (AD) is downward sloping; short-run aggregate supply (SRAS) is perfectly horizontal; medium-run aggregate supply (MRAS) is upward sloping; long-run aggregate supply (LRAS) is perfectly vertical.
What is the difference between the short and long run?
In macroeconomics, the distinction between the short run and the long run is commonly thought to be that, in the long run, all prices and wages are flexible whereas in the short run, some prices and wages can't fully adjust to market conditions for various logistical reasons.
What would happen if a business owner thought that the price of what he was selling was due to an increase
If a business owner thought that the increase in the price of what he was selling was due to an increase in the general price level in the economy, he or she would reasonably expect the wages paid to employees and the cost of inputs to soon rise as well, leaving the entrepreneur no better off than before. In this case, there would be no reason to expand production.
The Sticky-Wage Theory
The first explanation of the upward slope of the short-run aggregate-supply curve is the sticky-wage theory.
The Sticky-Price Theory
Some economists have advocated another approach to explaining the upward slope of the short-run aggregate-supply curve, called the sticky-price theory. As we just discussed, the sticky-wage theory emphasizes that nominal wages adjust slowly over time.
The Misperceptions Theory
A third approach to explaining the upward slope of the short-run aggregate-supply curve is the misperceptions theory.
Summing Up
There are three alternative explanations for the upward slope of the short-run aggregate-supply curve: