ECN 203 Lecture Notes - Lecture 22: Aggregate Supply, Aggregate Demand, Shortage
Document Summary
Macro shocks: macro shocks, sudden events that occur and take the economy off course, can happen to either (or both) aggregate demand and aggregate supply, ad- buyers, as- sellers. Macro response: unemployment: unemployment exists when y is less than yf in the macro model, thus, there is an excess supply in the labor market, adjustments in labor market will occur and economy will shift back to yf. = wage will continue to adjust downward to equilibrium. = if wage decreases, as increases (because the cost of production has lessened) = this means unemployment is at the natural rate and price decreases until it is at a stable. = it will continue to decreases until yf is reached point. Wages will increase until equilibrium ( rms compete against one another for workers) =thus, as decreases (because it cost more to produce a good) Philip"s curve i1 n o i t a n. If in ation was high, that meant low unemployment.
