ECC1100 Lecture Notes - Lecture 2: Aggregate Supply, Real Wages, Longrun
The Aggregate-Supply Curve
• Why the Aggregate-Supply Curve Is Vertical in the Long Run
o I the log u, a eooy’s podutio of goods ad sevies its eal GDP depeds
on its supplies of labor, capital, and natural resources and on the available technology
used to turn these factors of production into goods and services.
o The eooy’s lao, apital, atual esoues, ad tehology deteie the total
quantity of goods and services supplied, and this quantity supplied is the same
regardless of what the price level happens to be. Because the price level does not
affect the long-run determinants of real GDP, the long-run aggregate-supply curve is
vertical.
o
• Why the Long-Run Aggregate-Supply Curve Might Shift
o Shifts Arising from Changes in Labor: If there are greater number of workers, the
quantity of goods and services supplied would increase. As a result, the long-run
aggregate-supply curve would shift to the right. Conversely, if many workers left the
economy to go abroad, the long-run aggregate-supply curve would shift to the left.
o Shifts Arising from Changes in Capital: A iease i the eooy’s apital stok
increases productivity and, thereby, the quantity of goods and services supplied. As a
result, the long-run aggregate-supply curve shifts to the right. Conversely, a decrease
i the eooy’s apital stok deeases podutivity ad the uatity of goods ad
services supplied, shifting the long-run aggregate supply curve to the left.
o Shifts Arising from Changes in Natural Resources: An ecooy’s podutio depeds
on its natural resources, including its land, minerals, and weather. The discovery of a
new mineral deposit shifts the long-run aggregate-supply curve to the right. A change
in weather patterns that makes farming more difficult shifts the long-run aggregate-
supply curve to the left.
o Shifts Arising from Changes in Technological Knowledge:
• Using Aggregate Demand and Aggregate Supply to Depict Long-Run Growth and
Inflation
o Short-run fluctuations in output and the price level should be viewed as deviations
from the continuing long-run trends of output growth and inflation.
• Why the Aggregate-Supply Curve Slopes Upward in the Short Run
o The Sticky-Wage Theory: An unexpectedly low price level raises the real wage, which
causes firms to hire fewer workers and produce a smaller quantity of goods and
services.
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Document Summary
The aggregate-supply curve: why the aggregate-supply curve is vertical in the long run. As a result, the long-run aggregate-supply curve would shift to the right. As a result, the long-run aggregate-supply curve shifts to the right. The discovery of a new mineral deposit shifts the long-run aggregate-supply curve to the right. A change in weather patterns that makes farming more difficult shifts the long-run aggregate- supply curve to the left: shifts arising from changes in technological knowledge, using aggregate demand and aggregate supply to depict long-run growth and. A decrease in physical or human capital shifts the aggregate supply curve to the left: shifts arising from changes in natural resources: an increase in the availability of natural resources shifts the aggregate-supply curve to the right. A decrease in the availability of natural resources shifts the aggregate-supply curve to the left: shifts arising from changes in technology: an advance in technological knowledge shifts the aggregate-supply curve to the right.
