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Candidates should be able to define short-run aggregate supply and identify the determinants of the short-run AS curve, such as money wage rates, business taxation and productivity.
Real national output
Price level
SRAS
Y1
P1
Y2
P2
Price level – because we are now looking at the average price for all goods and
services not just one product
Price level – because we are now looking at the average price for all goods and
services not just one product
This is the value of the output of all the goods and services
produced in the given time period. The ‘real’ means the numbers are
adjusted for inflation
This is the value of the output of all the goods and services
produced in the given time period. The ‘real’ means the numbers are
adjusted for inflation
We could use Q for quantity
here. Y stands for national income and because the
value of output is the same as
national income many texts use
a Y
We could use Q for quantity
here. Y stands for national income and because the
value of output is the same as
national income many texts use
a Y
Short run is the Period the time period when at least one factor of production is fixed in supply
Short run is the Period the time period when at least one factor of production is fixed in supply
Real national output
Price level
SRAS
Y1
P1
Y2
P2
The AS (or SRAS) curve is the summation of all the individual supply curves of each firm which all slope upwards because, other things being equal, a higher price means higher profits and it is the profit motive, we assume, that motivates firms.
The AS (or SRAS) curve is the summation of all the individual supply curves of each firm which all slope upwards because, other things being equal, a higher price means higher profits and it is the profit motive, we assume, that motivates firms.
Real national output
Price level
SRAS 1
Q1
P1
SRAS 2
Q2
A change in:
•costs of raw materials,•money wages,•Productivity, •taxes on businesses,
moves the whole SRAS curve
A change in:
•costs of raw materials,•money wages,•Productivity, •taxes on businesses,
moves the whole SRAS curve
Real national output
AS
Yfe
Price level
P1
In the 1930s Keynes was most worried about unemployment. He thought the macro economy did not work in the same way as markets did at a micro level. It was possible to have equilibrium in the goods and services market at a level of AD that was too low to achieve a level of national income where there was full employment (Yfe)
In the 1930s Keynes was most worried about unemployment. He thought the macro economy did not work in the same way as markets did at a micro level. It was possible to have equilibrium in the goods and services market at a level of AD that was too low to achieve a level of national income where there was full employment (Yfe)
Real national output
AS
Yfe
Price level
AD1 AD3AD2
P1
Y1 Y2
P3
Keynesians saw AS as perfectly elastic. As AD increases, supply increases until Yfe is achieved (i.e. the economy is on the PPF). Any increase in AD beyond Yfe is inflationary as AS becomes perfectly inelastic.
Keynesians saw AS as perfectly elastic. As AD increases, supply increases until Yfe is achieved (i.e. the economy is on the PPF). Any increase in AD beyond Yfe is inflationary as AS becomes perfectly inelastic. Yfe is the
full-employment level of national income
Yfe is the full-employment level of national income
Real national output
AS
Yfe
Price level
AD1 AD3AD2
P1
Y1 Y2
P3
P2
As output increases spare capacity is reduced and ‘bottlenecks’ in production occur, output can still increase but the prices of the factors of production are bid up too. So AS gradually curves upwards Beyond Yfe the economy is on the PPF and an increase in AD just results in price increases.
As output increases spare capacity is reduced and ‘bottlenecks’ in production occur, output can still increase but the prices of the factors of production are bid up too. So AS gradually curves upwards Beyond Yfe the economy is on the PPF and an increase in AD just results in price increases.
Real national output
AS
Yfe
Price level
AD1 AD3AD2
P1
Y1 Y2
P3
P2
Real national output
LRASPrice level
One way of thinking about a Keynesian
AS curve is that it is perfectly elastic in the short run………
One way of thinking about a Keynesian
AS curve is that it is perfectly elastic in the short run………
…..and perfectly inelastic in the
long run. Labeling the curve LRAS is
common.
…..and perfectly inelastic in the
long run. Labeling the curve LRAS is
common.
Real national output
LRAS
Yfe
Price level
Real national output
LRAS
Yfe
Price level
Free market economists believe in “Say’s Law”, meaning “supply creates its own demand”. In the long run markets always achieve equilibrium and so AS is perfectly inelastic.
Free market economists believe in “Say’s Law”, meaning “supply creates its own demand”. In the long run markets always achieve equilibrium and so AS is perfectly inelastic.
We might call these
economists “SUPPLY SIDERS”
We might call these
economists “SUPPLY SIDERS”
Real national output
LRAS
Yfe
Price level
Free market economists believe in “Say’s Law”, meaning “supply creates its own demand”. In the long run markets always achieve equilibrium and so AS is perfectly inelastic.
Free market economists believe in “Say’s Law”, meaning “supply creates its own demand”. In the long run markets always achieve equilibrium and so AS is perfectly inelastic.
Real national output
Yfe
Price level
AD3
AD2
AD1
P1
P2
P3
Any increase in AD merely leads to a higher price
level.
Any increase in AD merely leads to a higher price
level.
LRAS
Real national output
Yfe
Price level
AD3
AD2
AD1
P1
P2
P3
LRAS
Real national output
LRAS
Yfe
Price level
AD3
AD2
AD1
P1
P2
P3
Real national output
SRAS
Yfe
Price level
AD3
AD2
AD1
P1
P2
P3
A few new classical
economists even used to say SRAS
is vertical and because of
rational expectations any
increase in government
spending immediately
causes prices to rise.
A few new classical
economists even used to say SRAS
is vertical and because of
rational expectations any
increase in government
spending immediately
causes prices to rise.
This sometimes get changed to the “NATURAL RATE OF UNEMPLOYMENT” which is a monetarist idea
This sometimes get changed to the “NATURAL RATE OF UNEMPLOYMENT” which is a monetarist idea
Real national output
SRASPrice level
A neo-classical/Keynesian consensus
Real national output
SRAS
Price level
A neo-classical/Keynesian consensus
LRAS
Yfe
Real national output
Price level
SRAS 1
Y2
P1
SRAS 2
Y1
AD
1. Show what will happen if the price of oil on world commodity markets falls, and fill in the missing labels.
P2
Real national output
Price level
P1
Y1
AD
Show what will happen if the price of oil on world commodity markets falls, and fill in the missing labels.
P2
Using a Monetarist/Free market LRAS curve show what will happen if the level of government spending increases.
Real national output
Price level
Using a Monetarist/Free market LRAS curve show what will happen if the level of government spending increases.
Real national output
Price level
Using a Keynesian AS curve show what will happen if the economy is currently in a slump and the level of government spending increases.
Actual GDP
Trend Growth
Short-run growth – percentage change in actual GDP
Long-run growth – the productive potential of the economy increases (shown by the trend line)
Actual GDP
Trend Growth
HYSTERISIS occurs when a recession/depression leads to a loss of skills and deterioration in infrastructure and capital so that the productive potential is harmed and the rate of long-run growth is reduced
PPF1 PPF2
Real National Income
Pricelevel Short-run growth –
percentage change in actual GDP
Long-run growth – the productive potential of the economy increases.
LRAS1 LRAS2
Real National Income
Pricelevel
Actual GDP
Trend Growth =productive potentialof the economy
Negative output gap
Positive output gap
A positive output gap occurs when actual GDP is greater than potential GDP.
A negative output gap occurs when actual GDP is less than potential GDP.
Real national output
LRAS
Yfe
Price level
SRAS1
AD
Y1
A negative output gap
Real national output
LRAS
Yfe
Price level
SRAS1
AD
Y2
A positive output gap
SRAS2
(unsustainable in the LR)
AS Macroeconomics
LRAS1
Real National Income
Pricelevel
LRAS2
Supply-side policies are policies that improve the productive potential / capacity of an economy.
Supply-side policies can be implemented by the public or the private sector.
•Competition policy including privatisation/nationalisation. Deregulation and regulation.
•Policies aimed at stimulating entrepreneurship and the expansion of smaller businesses
•Labour market reforms including tax and benefit changes, migration policy
•Trade policies including membership of the EU single market and WTO commitments •Policies designed to increase spending on investment and research
The key supply-side concepts to focus on are incentives, enterprise, technology, mobility, flexibility and efficiency.
•Improve incentives to find work
•Increase labour and capital productivity •Increase the occupational and geographical mobility of labour •Increase capital investment and R&D spending by firms •Promote competition and stimulate invention and innovation •Provide a platform for sustained non-inflationary growth of an economy
http://bcove.me/5l5u6fre
In Oct 2008, lone parents had move onto JSA and look for work once their youngest child reached the age of 12 rather than 16.
In Oct 2010, lone parents had to switch toJobseekers Allowance (JSA) even earlier, to when their youngest child is seven
Evaluation is it in the long-term interest of society’s well-being to encourage single mothers to leave their children so early on in their childhood?
That’s all
