Period in which wages remain fixed as price level increases or decreases. Price level changes allow for companies to exceed normal outputs and hire more workers because profits are increasing while wages remain constant. In long run wages will adjust accordingly. The long run As curve is represented with a vertical line at full employment level of real GDP
Inflation
Demand pull- prices increase based on increase in aggregate demand in the short run, demand pull will drive up the prices of and increase production . If long run increases aggregate demand will.
Cost push - arises from factors that will increase per unit costs such as increase in the price of a key resource shift left. in effort to fight cost-push the government can react in two different ways:
- by spending which could create a inflationary spiral
- no action which leads to recession by keeping production
Because the long run Phillips curve exists at natural rate of unemployment (un) structural change in the economy that effect Un will also cause LRPC to shift
Increases LRPC
- Inflation-rises level
- Deflation- decline in price level
- Disinflation- decrease in inflation rate over time
- Stagflation- inflation and unemployment at equal
https://www.khanacademy.org/economics-finance-domain/macroeconomics/aggregate-supply-demand-topic/aggregate-supply-demand-tut/v/long-run-aggregate-supply
ReplyDeleteThe above link is a video that helped me understand the long run aggregate supply curve, you might want to check it out. You've got an amazing blog I love how organized everything is and the way you explain each topic is terrific.