ECN 204 Chapter Notes - Chapter 26: Aggregate Supply, Potential Output, Price Level
Document Summary
It"s the (cid:396)elatio(cid:374)ship (cid:271)/(cid:449) the (cid:395)ua(cid:374)tit(cid:455) of (cid:396)eal gdp supplied a(cid:374)d the p(cid:396)i(cid:272)e le(cid:448)el (cid:449)he(cid:374) (cid:396)eal. Gdp equals potential gdp: the long-run aggregate supply curve (las) is vertical at potential gdp. In the long run, the quantity of real gdp supplied is potential gdp: as the price level rises and the money wage rate changes by the same %, the quantity of real gdp supplied remains at potential gdp. As the price rises above 110, the quantity of real gdp supplied increases along the sas curve. Changes in aggregate supply: aggregate supply changes if an influence on production plans other than the price level changes. These influences include: changes in potential gdp and in money wage rate. Changes in potential gdp: when potential gdp rises, both the las and sas curves shift rightward, potential gdp increases if the full-employment quantity of labour increases, the quantity of capital increases or an advance in technology occurs.
