Chapter 20 Flashcards
What is short-run aggregate supply
a curve showing how much output firms would be prepared to supply in the short run at any given overall price level
Factors that shift the short-run aggregate supply
Exchange rates, costs of materials and government intervention
What are neoclassical economists
Economists who argued that markets would allow the economy to adjust to equilibrium
What are Monetarist school
A group of economists who argued that the economy would always converge on a equilibrium level of output
What is the ‘Natural rate of output’
The long-run equilibrium level of output that corresponds to full employment
What is the Neoclassical view
The country would always find its way to overall equilibrium, which responds to a situation when the economy s at full employment (when it is making use of all its production factors), therefore producing at maximum output. Lras is verticle at full employment. The economy converges rapidly to full employment. Policy intervention is not needed because the economy adjusts rapidly. Aggregate supply is not sensitive to price level
What is the Keynesian school
A group of economists who believed that macroeconomy could settle at an equilibrium that was below full employment
What is the Keynesian view
The economy could settle at equilibrium below full employment. When the economy is operating below a certain level of output aggregate supply is sensitive to the price level, but becomes steeper till verticle as you reach full employment. The economy could settle at a level of output below full employment. Policy intervention may be needed to move towards full employment. Aggregate supply is sensitive to price level when the economy is below full employment
What shifts the long-run aggregate supply
Technological advances
increased investments in technology,
changes in relative productivity,
changes in education and skills,
changes in government regulation,
changes in demographic and migration
competition policy,
What is macro equilibrium in the short run
It is possible that production can be greater than equilibrium, but only on a temporary basis, perhaps by the use of overtime. In the short run its possible to produce more than the equilibrium but this is unsustainable, so in the long run the SRAS curve would move back to the left, likely below the equilibrium.
