Lecture 16 Equilibrium in the AD-AS modelThe Prosperity of Virginia:Honor Code: Legal, Social InstitutionThe Short Run Model of the EconomyLRAS The AD-AS ModelP LRAS SRAS100 AADYLong run equilibriumLRAS=AD=SRASP LRAS SRAS105 c b100 AADYconsumer confidenceunemployment rate dropsShort run results1. P rise to 1052. Y rise to Y13. U down to u1Not everybody happy: Not all prices have adjusted. Short run: input prices adjustmentP LRAS SRAS100 AADYLong run results1. P rise to 110: nominal factor2. Y=Y*: Real factors3. u=u*: real factorsAggregate supply shiftsNew TechnologyP LRAS SRAS100 AADYBoth Y are natural unemployment ratesLong run resultsY inderase to Y*U does not changep decreaseGreat recessionSymptomsBig contractionPersistant
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