Short run aggregate supply
- Time is too short for wages to adjust to the price level
- Workers may not be aware of changes in their real wages due to inflation and have adjusted their labor supply decisions and wage demands accordingly
- Fixed contract, no pay increase
3 Ranges
- Horizontal/Keynesian
- Intermediate
- Vertical/classical
Wages
· Nominal wage
o amount of money received per hour per day or per year
· Sticky wages
o Where the nominal wage level is set according to an initial price level, and it does not vary
Levels
· Keynesian
o Price level is fixed
o Wage level is fixed
o Unemployment level is flexible
o (Output depends on changes in employment)
· Intermediate
o Price level is flexible
o Wage level is fixed
o Employment level is flexible
o (Output depends upon changes in price level and employment)
· Classical
o Price level is flexible
o Wage level is foxed
o Employment level is fixed
o (Output depends on changes in price level)
Long run aggregate supply
- Flexible wage and price level
- They offset each other
- Shifts are connected to the PPC graph
- Time is long enough for wages to adjust to the price level
- Growth in some format, technological change, capital stock gains (shifts)
Demand pull inflation
- Pulling something towards you
- AD will increase
Cost push inflation
- Pushing something away
- Decrease production
Recession
- Not going to be spending
- AD is decreasing
Economic growth
- Prices are going to be going up
- AD is decreasing
