Lecture 151. Real wealth (+): move along the curve instead of shift the curve2. Expected income (+)Consumption smoothingConsumer confidence!!3. Expected future prices (+)4. Foreign income (+)5. Value of the dollar(Value of dollar)↑-----decrease exports increase imports—NX decreaseInputs: workers, raw materials, capital Input pricesFirm:Output: GDP, Good and services Output pricesAS SlopeP ASBASA YSame questionHow do firms respond when the prices level rises?Answer: B:If input and output prices increase together, no change in outputExample: 10% increase in bothA: only final good price changesLong run: Enough time for all prices to adjustShort run: Some prices haven’t yet adjusted. Only some adjust.Input prices tend to be stickier than output prices LRAS SRASY*=full employment outputu=u*LRASP LRASO LRAS1YWhat factors affect a nation’s ability to produce in the long run?1. Resources2. Technology3. InstitutionsShift in SRASWhen LRAS shifts, SRAS also shifts, but the opposite is not true.Some supply changes don’t affect long run productionShift only SRAS1. Supply shocksEvents that change firms’ production costsExample: WeatherRY2.(-) Expected future
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