module aggregate supply: introduction and determinants krugman's macroeconomics for ap* 18...

ModuleAggregate Supply:Introduction andDeterminants

KRUGMAN'SMACROECONOMICS for AP*

18

Margaret Ray and David Anderson

Modules 18 & 19Aggregate supply and equilibrium

ReadingReading

What you will learnWhat you will learn

in thisin this ModuleModule::

• How the aggregate supply curve illustrates the relationship between the aggregate price level and the quantity of aggregate output supplied in the economy

• What factors can shift the aggregate supply curve

• Why the aggregate supply curve is different in the short run from in the long run

• The relationship between the price level and the real GDP supplied

Aggregate SupplyAggregate Supply

Short-Run Aggregate Supply Short-Run Aggregate Supply Curve (SRAS)Curve (SRAS)

Why does it slope upwards?

Sticky Nominal WagesSticky Nominal Wages

• Nominal wage = what you get paid in current dollars. Not real wage.

• Why are nominal wages “sticky”?

• What would you do if prices went up by 1% this month.

Sticky Nominal WagesSticky Nominal Wages

• Price level increases.

• Nominal wages don’t rise as fast.

• Business profits increase.

• Hire more workers, produce more.

Sticky Nominal WagesSticky Nominal Wages

• Price level decreases.

• Nominal wages don’t fall as fast.

• Business profits decrease.

• Layoff workers, produce less..

Shifts of the Short-Run Shifts of the Short-Run Aggregate Supply CurveAggregate Supply Curve

• ∆ Commodity Prices

• ∆ Nominal Wages

• ∆ Productivity

Team activity – SRAS ShiftsTeam activity – SRAS Shifts

• Left side shift out, right side shift in.

• Team 1 – commodity prices

• Team 2 – nominal wages

• Team 3 - productivity

Individual – SRAS ShiftsIndividual – SRAS Shifts

• Activity # 24 – SRAS scenarios

The Long-Run Aggregate The Long-Run Aggregate Supply CurveSupply Curve

• Flexible Wages

• Long Run

• LRAS

• Potential Output

• Factors that shift LRAS!

What factors shift the LRAS?What factors shift the LRAS?

Create a Word Wall

From the Short Run to the From the Short Run to the Long RunLong Run

SummarySummary

SRAS Change in Quantity of Output

Shift in SRAS Shift in LRAS

Sticky nominal wages

Business profits.

Fluctuations in:

Commodity prices

Nominal Wages

Productivity

Exogenous shocks

Permanent growth:

More resources

Human capital

Technology

Exit TicketExit Ticket

• Aggregate Supply Scenarios