Term
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Definition
Y=Yp
U=Un
Real wage remains constant (W/P)
P and W vary proportionately |
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Term
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Definition
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Term
| Long Run Aggregate Supply (LRAS) Shifts |
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Definition
Right(K↑, Labor↑, Tech↑)
Left(War, Famine, Opposite right shifts) |
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Term
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Definition
AD = C + G + I + NX
(-)Slope due to increase in price level resulting in a decrease in real wealth and consumption |
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Term
| Short Run Agg Supply (SRAS): |
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Definition
Fastened to LRAS (shifts with it)
P↑ -> Profit↑ -> Produce More;
(+)Slope Shift Up/Left (Wages↑, Production↑)
Shifts Up Left due to Wages↑ |
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Term
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Definition
Developed by Friedman
Reducing U below Un by keeping AD high -Only works in SR. Eventually P↑
--SRAS shifts bringing us back to LR: ---P↑ U↑, Y↓ |
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Term
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Definition
Demand creates supply
When AD shifts right and firms believe it's permanent, Yp↑ as LRAS shifts right because firms expand
Criticizes NRH |
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Term
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Definition
| Un = Frictional + Structural |
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Term
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Definition
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Term
| Appropriate Gov Policy when at recessionary gap: |
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Definition
Monetary Policy : Lower interest rates
Fiscal Policy : Purchase more goods and services |
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