Aggregate Supply Flashcards
does LRAS depend on price level?
NO, it is independent of price level - vertical curve
what shifts LRAS?
long term changes in resources, technology, institutions
Why is SRAS curve upward sloping? OR
What causes movements ALONG SRAS curve?
Sticky input prices, menu costs, money illusion - OUTPUT prices increase while input prices stay constant - supply increases
what is money illusion?
when workers interpret nominal pay cuts as real changes
what factors SHIFT SRAS curve?
changes to input costs, supply chain shocks, future price expectations
Shift of which curve causes stagflation - AS or AD?
when SRAS shifts left
what is a price bubble?
when the current price of an ASSET is higher than its intrinsic value
a recessionary gap means high unemployment/inflation?
unemployment (when due to AD shift)
an inflationary gap means high unemployment/inflation?
inflation
what is stagflation?
type of recession with both high unemployment AND high inflation - caused by decrease in SRAS (usually after excessive AD)
how does inflation affect multiplier?
weakens it - higher prices - less purchasing power
