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ECO 1102 Chapter Notes - Chapter 14: Aggregate Supply, Longrun, Money Supply

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School
University of Ottawa
Department
Economics
Course
ECO 1102
Professor
Octavian Strimbu

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ECO 1102 Full Course Notes
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ECO 1102 Full Course Notes
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Document Summary

The current state of the economy is shown in figure 1. The aggregate-demand curve and short-run aggregate-supply curve intersect at a point on the long-run aggregate supply curve. A stock market crash leads to a leftward shift of aggregate demand. The equilibrium level of output and the price level will fall. Since the quantity of output is less than the natural rate of output, the unemployment rate will rise above the natural rate of unemployment. If nominal wages are unchanged as the price level falls, firms will be forced to cut back on employment and production. Over time as expectations adjust, the short-run aggregate supply curve will shift to the right moving the economy back to the natural rate of output. When canada experiences a wave of immigration, the labour force increases, so long-run aggregate supply increases as there are more people who can produce output.

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Related Questions

Determine the effect on either the aggregate demand curve (is it a rightward or a leftward shift?), the aggregate short-term supply curve, and the long-term aggregate supply curve (does the upward sloping portions of the SAS curve shift left or right, or does the vertical portion of the LAS curve shift to the right or the left?). Also determine the effect on the price level, the real output level, and employment/unemployment. Explain and express this graphically using the AS/AD macro model.


In late 2004, oil prices increased sharply while the rate of growth in labor productivity declined. The combination of these two factors should shift the short-run aggregate supply curve up (left). The increase in oil prices, when combined with the slowdown in productivity growth, will likely result in higher costs for firms at each output level. To offset these higher costs, firms increase their prices at each output level, causing the short-run aggregate supply curve to shift up (left).

Determine the effect on either the aggregate demand curve (is it a rightward or a leftward shift?), the aggregate short-term supply curve, and the long-term aggregate supply curve (does the upward sloping portions of the SAS curve shift left or right, or does the vertical portion of the LAS curve shift to the right or the left?). Also determine the effect on the price level, the real output level, and employment/unemployment. Explain and express this graphically using the AS/AD macro model.


Show that, starting from a long-run equilibrium, an increase in government expenditures increases output in the short-run but not in the long-run.

Determine the effect on either the aggregate demand curve (is it a rightward or a leftward shift?), the aggregate short-term supply curve, and the long-term aggregate supply curve (does the upward sloping portions of the SAS curve shift left or right, or does the vertical portion of the LAS curve shift to the right or the left?). Also determine the effect on the price level, the real output level, and employment/unemployment. Explain and express this graphically using the AS/AD macro model.

The rapid development of internet technologies during the 1990s allowed businesses to produce goods and services cheaper than before and also gave rise to completely new services. We would show this change in the aggregate-demand/aggregate-supply model by moving the aggregate supply curve down (right) with little change in aggregate demand. Improvements in technology increase potential output and reduce costs, moving the short aggregate supply curve down and the long-run aggregate supply curve to the right.