BIOM 121 1nd Edition Lecture 58 Outline of Last Lecture I. Short-Run Aggregate Supply CurveII. Macroeconomic Equilibrium In the Long-Run and Short-RunOutline of Current Lecture I. Case 1: Government should stay away from stabilizing ADII. Case 2: Expansion III. Case 3: Inflation Growing in the Economy Current Lecture*Can be found on page 807 of the bookI. Case 1: Government should stay away from “stabilizing” AD a. Economy can drag itself out of recessioni. Automatic self-stabilization b. When unemployment rate is high i. It’s below potential GDP ii. This means that a lot of workers will be more willing to accept lower wages 1. This results in lower labor costs for firms 2. This causes AD2 to shift to the right because production is less, SRAS (short-run aggregated supply) increases a. Pulls the economy out of the recession II. Case 2: Expansion a. U.S. goods become popular i. AD increasesii. At point B, real GDP is greater than potential 1. Price level increases iii. Federal Reserve will try to stabilize AD 1. Higher interest rates III. Case 3: Inflation growing in the economya. Workers are hard to find. Firms will bid up the wages. Labor costs will increase firms are less profitable so they supply less These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a
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