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Is the long run aggregate supply curve upward sloping?
No, the long-run aggregate supply (LRAS) curve is typically depicted as vertical. This indicates that in the long run, the total output of an economy is determined by factors such as technology, resources, and labor, rather than the price level. In contrast, the short-run aggregate supply (SRAS) curve is upward sloping due to price and wage stickiness, allowing for temporary increases in output in response to higher demand.
Can the aggregate demand curve move independently of the aggregate supply curve?
Yes, the aggregate demand curve can move independently of the aggregate supply curve. Factors such as changes in consumer confidence, monetary policy, and fiscal policy can shift the aggregate demand curve without directly affecting aggregate supply. For example, an increase in government spending can boost aggregate demand while aggregate supply remains unchanged in the short term. However, over time, changes in demand can influence supply as businesses adjust to new economic conditions.
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.
Why is it that short run aggregate supply curve is normal?
Because the supply curve basically is for the short run, and not permanent for the long run. That's why it's considered normal.
Why is the short-run aggregate supply curve horizontal if?
The short-run aggregate supply curve is horizontal if the economy is operating below full capacity, meaning there are unused resources like labor and capital. This indicates that firms can increase production without raising prices, resulting in a flat supply curve.
Is the long run aggregate supply curve upward sloping?
No, the long-run aggregate supply (LRAS) curve is typically depicted as vertical. This indicates that in the long run, the total output of an economy is determined by factors such as technology, resources, and labor, rather than the price level. In contrast, the short-run aggregate supply (SRAS) curve is upward sloping due to price and wage stickiness, allowing for temporary increases in output in response to higher demand.
Can the aggregate demand curve move independently of the aggregate supply curve?
Yes, the aggregate demand curve can move independently of the aggregate supply curve. Factors such as changes in consumer confidence, monetary policy, and fiscal policy can shift the aggregate demand curve without directly affecting aggregate supply. For example, an increase in government spending can boost aggregate demand while aggregate supply remains unchanged in the short term. However, over time, changes in demand can influence supply as businesses adjust to new economic conditions.
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.
Why is it that short run aggregate supply curve is normal?
Because the supply curve basically is for the short run, and not permanent for the long run. That's why it's considered normal.
Why is the short-run aggregate supply curve horizontal if?
The short-run aggregate supply curve is horizontal if the economy is operating below full capacity, meaning there are unused resources like labor and capital. This indicates that firms can increase production without raising prices, resulting in a flat supply curve.
What factors influence the short run aggregate supply curve?
Factors that influence the short run aggregate supply curve include changes in input prices, technology, government regulations, and expectations of future prices. These factors can impact the cost of production and the ability of firms to supply goods and services in the short term.
What does a short run aggregate supply curve shows?
The short-run aggregate supply (SRAS) curve illustrates the relationship between the overall price level in an economy and the quantity of goods and services that firms are willing to produce in the short run. It typically slopes upward, indicating that as prices rise, firms are incentivized to increase production due to higher profit margins. This upward slope reflects the presence of fixed costs and input prices in the short run, which do not adjust immediately to changes in demand. Thus, the SRAS can shift due to factors like changes in input costs, productivity, or supply shocks.
The short term aggregate supply curve represents the relationship between what?
The short term aggregate supply curve represents the relationship between the price level and the quantity of real GDP that firms are willing to supply in the economy. It shows the level of output that firms can produce in the short run at different price levels.
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.
If workers actively demand pay increases when the price level is rising and are willing to accept pay cuts when the price level is falling then the short-run aggregate supply curve would be horizontal?
If workers demand pay increases during rising price levels but accept pay cuts when prices fall, it suggests a strong sensitivity to changes in real wages rather than nominal wages. This behavior implies that firms can adjust their output without changing prices in the short run, leading to a horizontal short-run aggregate supply curve. In this scenario, the economy can respond to demand changes without facing upward pressure on prices, as workers' wage expectations are flexible. Thus, the short-run aggregate supply curve would be more elastic, resembling a horizontal line.
