Transcript Short Run to Long Run and Reconciling with the PPC

Short Run to Long Run
AP Macroeconomics
Where we came from…
Previously, we learned the
supply and demand
shocks are events that
shift the short-run
aggregate supply curve
and the aggregate
demand curve. Some
shocks are positive, and
others are negative.
We also learned that shifts
in AD change the
equilibrium along the
SRAS curve.
Visual 3.11, Unit 3 Macroeconomics, National Council on
Economic Education, http://apeconomics.ncee.net
Where are we going?

Until now, we’ve
mostly discussed
short-run changes in
the macroeconomy.
How do we move
from the short run to
the long run?
http://vokinburt.files.wordpress.com/2010/03/short-term-memoryloss1.jpg
From the Short Run to the Long Run
The economy is
initially at full
employment output
(Y*)
There is an increase
in aggregate demand
from AD  AD1
Output increases to
Y1, and the price
level increases to P1.
Visual 3.13, Unit 3 Macroeconomics, National Council on Economic
Education, http://apeconomics.ncee.net
What does this mean?
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As the price level increases,
there’s a push for higher
nominal wages to
compensate for the higher
price level.
The increase in nominal
wages will shift the
aggregate supply curve to
the left (one of those
determinants).
Down the road, the
economy will return to the
potential output level of Y*,
but when it does it will be at
a higher price level, P2.
This is referred to as adjustment over
the long run
Reconciling with the PPC…

Increases in the factors that
shift the LRAS curve will
also shift the PPC

Factors that shift the LRAS
to the right also shift the
PPC outward or to the right

Factors that shift the LRAS
to the left also shift the PPC
inward or to the left.
Visual 3.14, Unit 3 Macroeconomics, National Council on Economic Education,
http://apeconomics.ncee.net
Factors that shift the LRAS curve…
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Increases in technology
Productivity of labor
Increase in capital
stock
http://www.rootsweb.ancestry.com/~nycayuga/misc/images/NationalC
arTruckCo.jpg
What you may want to do from here.

Create a chart or Venn
Diagram to understand
the determinants (factors
that shift) of the following:

supply and demand,
investment demand, shortrun aggregate supply and
aggregate demand, and
long-run aggregate supply.
This may help you to
differentiate between those
factors.
And now…
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Some resources:
http://www.reffonomics.com/textbook2/macroec
onomics2/keynesianthought/keynesiancross.
swf
Works Cited
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Economics of Seinfeld. Demand.
http://yadayadayadaecon.com/clip/46/
Krugman, Paul, and Robin Wells. Krugman’s
Economics for AP. New York: Worth
Publishers.
Morton, John S. and Rae Jean B. Goodman.
Advanced Placement Economics: Teacher
Resource Manual. 3rd ed. New York: National
Council on Economic Education, 2003. Print.
Reffonomics. www.reffonomics.com.