THE EXTENDED AS-AD MODEL In order to understand the do of inflation in the immense return, lets first analyze the long run collect demand (AD) and aggregate supply (AS) threads in the long run through the extended AS-AD model. SHORT-RUN AND long run AGGREGATE SUPPLY Short Run It is the gunpoint in which titular reinforcement (and other input termss) remain determined as the price direct increases or slumps. Causes of improve token(a) wages: * Workers whitethorn not immediatel y be redolent of the extent that inflation or deflation has changed their real wages, and thus they may not adjust their labor supply decisions and wage demands accordingly. * galore(postnominal) employees be hired under fixed-wage contracts. For unionized employees their prospective wages ar set for 2 years. Other professionals too cave in annual contracts. For the reasons mentioned above, price- aim changes dont immediately give rise to changes in nominal wages in the on the spur of t he twinkling run. The short check can also be explained with the military service of a graph. In this graph, only the intermediate range of the AS curve has been considered. In the short run, nominal wages a re fixed and based on price level P1 and the expectation that it give continue.
An increase in the price level from P1 to P2 increases profits and turnout woful the economy from a1 to a2; a decrease in the price level from P1 to P3 reduces profits and real output, moving the economy from a1 to a3. The short run aggregate supply curve therefore slopes upward. Long Run It is the period in which nominal wages are fully responsive to previous changes in the price level. Let us illustrate this by a graph. Suppose that th! e economy is initially at point a1 (P1 and QF). When the price level will increase from P1... If you pauperization to get a full essay, order it on our website:
OrderEssay.netIf you want to get a full information about our service, visit our page:
write my essay
No comments:
Post a Comment