Aggregate Demand and Aggregate Supply - Aggregate Supply - from Short Run to Long Run
3 important questions on Aggregate Demand and Aggregate Supply - Aggregate Supply - from Short Run to Long Run
How is it possible to produce an aggregate output level this is higher than the potential output
- it is only possible to produce an aggregate output level this is higher than the potential output because nominal wages have not fully adjusted upward.
- until this upward adjustment in nominal wages occurs, producers are earning high profits and producing a high level of output
What do we call the level of real GDP that the economy would produce if all prices, including nominal wages, were perfectly flexible?
What does a level of aggregate output lower than potential output mean? What does this mean for workers wages? What happens to the short run aggregate supply curve?
- It means a high level of unemployment
- because jobs are scarce and workers and abundant the nominal wage will fall over time
- shifting the short run aggregate supply curve rightward
The question on the page originate from the summary of the following study material:
- A unique study and practice tool
- Never study anything twice again
- Get the grades you hope for
- 100% sure, 100% understanding