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Because the supply curve basically is for the short run, and not permanent for the long run. That's why it's considered normal.
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Why does the slope of the aggregate supply curve change from the short run to the long run?
Aggregate supply is a measure of the total goods and services produced by an economy at various price levels, either in the short run or in the long run. Short run aggregate supply curve is assumed to be upward sloping. Higher prices for goods and services means more profit for suppliers, so they will produce more goods and services. Long run aggregate supply curve is assumed to be vertical. Short run aggregate supply curve is curved because prices can change. A change in the price level means a movement along the short run aggregate supply curve. An increase in costs results in a fall in aggregate supply because the output is less at every price level. A decrease in costs results in a rise in aggregate supply because the output is more at every price level. In the long run, the aggregate supply is assumed to be independent of price level. In other words, the economy is at the maximum output possible. Full employment level has been reached and real GDP has reached its maximum potential, so the long run aggregate supply curve must be drawn as vertical. Increases in the quality and number of factors of production will cause the productivity of the suppliers to increase, and the long run aggregate supply will shift right.
What is the meaning of the intersection of three curves the AD curve and the short run AS curve and the long run AS curve?
Using the AD-AS model, start with a long-run equilibrium and assume velocity V is constant, then analyze the following case: The pandemic recession is the result of adverse Demand and Supply shocks. a. What happens to the Aggregate Demand curve and What happens to the Aggregate Supply curve? b. What happens to output Y and the price level P in the short run? c. What short-run problems are created for the labor and goods markets? d. What kinds of stabilization policies are required to stimulate recovery? Describe the 5 specific tools and their directions of change to be used.
Does Economies have a self correcting mechanism for inflationary and recessionary gaps Expain?
Yes they do. In an inflationary gap the equilibrium with the aggregate demand and the short run aggregate supply curves is higher than the long run aggregate supply curve. Eventually, the short run aggregate supply curve will slowly move to the left towards equilibrium. Output in an inflationary gap cannot be held up. This is not usually allowed, usually monetary and fiscal policies work to move the aggregate demand. In a recessionary gap, the opposite will happen. The short run aggregate supply curve will move to the right slowly towards equilibrium because the natural rate of unemployment is higher than the actual rate of unemployment so people will be willing to work for less.
What makes the short term aggregate supply curve shift?
Any change in the quantity of any factor of production available will cause a shift.
Why does the short run aggregate supply curve slope upward?
there are three reasons why the SRAS curve is upward sloping Sticky wages theory Sticky Price Theory misperception theory
Why does the slope of the aggregate supply curve change from the short run to the long run?
Aggregate supply is a measure of the total goods and services produced by an economy at various price levels, either in the short run or in the long run. Short run aggregate supply curve is assumed to be upward sloping. Higher prices for goods and services means more profit for suppliers, so they will produce more goods and services. Long run aggregate supply curve is assumed to be vertical. Short run aggregate supply curve is curved because prices can change. A change in the price level means a movement along the short run aggregate supply curve. An increase in costs results in a fall in aggregate supply because the output is less at every price level. A decrease in costs results in a rise in aggregate supply because the output is more at every price level. In the long run, the aggregate supply is assumed to be independent of price level. In other words, the economy is at the maximum output possible. Full employment level has been reached and real GDP has reached its maximum potential, so the long run aggregate supply curve must be drawn as vertical. Increases in the quality and number of factors of production will cause the productivity of the suppliers to increase, and the long run aggregate supply will shift right.
The short term aggregate supply curve represents the relationship between what?
the IS curve represents the combination of interest rates and outputs that put the goods market in equilibrium
What is the meaning of the intersection of three curves the AD curve and the short run AS curve and the long run AS curve?
Using the AD-AS model, start with a long-run equilibrium and assume velocity V is constant, then analyze the following case: The pandemic recession is the result of adverse Demand and Supply shocks. a. What happens to the Aggregate Demand curve and What happens to the Aggregate Supply curve? b. What happens to output Y and the price level P in the short run? c. What short-run problems are created for the labor and goods markets? d. What kinds of stabilization policies are required to stimulate recovery? Describe the 5 specific tools and their directions of change to be used.
Does Economies have a self correcting mechanism for inflationary and recessionary gaps Expain?
Yes they do. In an inflationary gap the equilibrium with the aggregate demand and the short run aggregate supply curves is higher than the long run aggregate supply curve. Eventually, the short run aggregate supply curve will slowly move to the left towards equilibrium. Output in an inflationary gap cannot be held up. This is not usually allowed, usually monetary and fiscal policies work to move the aggregate demand. In a recessionary gap, the opposite will happen. The short run aggregate supply curve will move to the right slowly towards equilibrium because the natural rate of unemployment is higher than the actual rate of unemployment so people will be willing to work for less.
What makes the short term aggregate supply curve shift?
Any change in the quantity of any factor of production available will cause a shift.
Why does the short run aggregate supply curve slope upward?
there are three reasons why the SRAS curve is upward sloping Sticky wages theory Sticky Price Theory misperception theory
Define aggregate supply and describe the conditions underlying each of the three major segments along a short-run aggregate supply curve?
Aggregate supply is just the amount of goods and services a firm will product over a variety of price ranges. The segments of the Aggregate supply curve goes as follows: the horizontal range: producers can increase output without increasing price/cost ( this is known as SRAS -short run aggregate supply it is horizontal because not a lot can change in the short run) countries are usually here during a recession The sloped range: this is the second segment of curve, it shows economic growth. in this part the price increases as output increases. this is the part of the curve where the country lies between recession and inflation. the vertical range: this is also known as LRAS or long run aggregate supply it is completely vertical. the optimal place to be on the curve is where the second and third segment meet. this is because once you hit the vertical range producers no longer can increase output and prices can only increase. this is as you've guessed the inflation part of the graph because prices increase while output stays the same. hope this helps :)
What is Simple theory of Income Determination?
Total income depends on total employment which depends on effective demand which in turn depends on consumption expenditure and investment expenditure. Consumption depends on income and propensity to consume. Investment depends upon the marginal efficiency of capital and the rate of interest. J. M. Keynes made it clear that the level of employment depends on aggregate demand and aggregate supply. The equilibrium level of income or output depends on the relationship between the aggregate demand curve and aggregate supply curve. As Keynes was interested in the immediate problems of the short run, he ignored the aggregate supply function and focused on aggregate demand. And he attributed unemployment to deficiency in aggregate demand.
Why do wages and row material affect short-run aggregate supply but not long-run aggregate supply?
wages and raw material effect short run aggregate supply because of productivity factor but money is neutral in the long run so will never effect long run
A horizontal short-run aggregate supply SRAS curve implies that in the short run?
In the short run, prices are fixed and firms produces output to meet demands. So, firms take prices as given and produce output to meet desired expenditure.
Increased consumer spending will usually cause?
In the short run increased consumer spending causes an increase in Aggregate Demand and therefore an increase in both Real Gross Domestic Product and Price Levels. Also this generally means; inflation, decrease in unemployment, and growth, these can vary however, depending on where on the Aggregate Supply curve the AD curve is.
What will happen to the equilibrim price level and real GDP if aggregate demand and aggregate supply both increase?
If aggregate demand increases at every price level than the demand curve shifts to the right. In the short-run the new equilibrium forms from an increase in willingness to spend, thus higher prices and higher real GDP or quantity of output. If short-run aggregate supply increases at every price level than the supply curve shifts to the right. From the short-run to the long-run the new equilibrium forms from an increase willingness to sell, thus prices reduce to original equilibrium and output increases further. Recap: Prices stay constant while real GDP or total quantity of output increases.
