ECO105Y1 Chapter Notes - Chapter 8: Aggregate Demand, Aggregate Supply, Demand Shock
Document Summary
From production possibilities frontier to long-run aggregate supply. Production possibilities frontier the macro ppf shows the maximum combination of consumer goods and capital goods. Maximum combination of economic if the use the inputs efficiently inputs do not appear on the graph focus on potential gdp the outputs that those inputs can produce. Vertical axis: price level, measured by cpi. Long-run aggregate supply (las) the economy"s potential gdp the quantity of real gdp supplied when all inputs are fully employed. On las, the quantity of real gdp a economy can produce does not change (no matter the price level is at potential gdp) Only depends on the quantities of inputs (cid:883) Left of las: quantities of real gdp less than potential gdp unemployed inputs. Long run aggregate supply represents two of the macroeconomic performance targets: potential gdp, full employment. The aggregate supply choices of the macroeconomic players depend on the time period.
