ECON 2203 1st Edition Lecture 28Outline•Three Facts about short-run economics•Aggregate Supply and Aggregate Demand model– The Long-run Aggregate Supply Curve (LRAS) (slides#14) – The Short-run Aggregate Supply Curve (SRAS) (slide#20)• The sticky-wage theory (slide#22)• The sticky-price theory (slide#30)• The misperceptions theory (slide#34)– Aggregate Demand Curve (AD) (slide#42)•Two Causes of Economic Fluctuations (slide#53)– The Effects of a shift in Aggregate Demand– The Effects of a shift in Aggregate Supply• The concept of Stagflation3Why the SRAS Curve Might ShiftThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.• Everything that shifts LRAS shifts SRAS, too. – Changes in Labor– Changes in Capital– Changes in Natural Resources– Changes in Technology– One more variable: misperceptions (price level)38Change of P: move along the curve (Review)PYSRASY1PE = P1•Sticky-wage; Sticky-price; Misperception theories.•PE = P1•P increases,39Why the SRASCurve Might ShiftIf PErises, workers & firms set higher wages. At each P, production is less profitable, Yfalls, SRASshifts rightPLRASYSRASPYN40Why the SRASCurve Might ShiftIf PEdrops, workers & firms set lower wages. At each P, production is more profitable, Yrises, SRASshifts
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