Transcript Macro Unit II Macro Analysis PPT Part III

Mods
17-21,
30
Macro Analysis
Part III
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THE LONG-RUN AGGREGATESUPPLY CURVE
In the long run, an economy’s amount of
production of goods and services depends on its
supplies of labor, capital, and natural resources
and on the available technology used to turn
these factors of production into goods and
services, plus the gov’t policies that promote
productivity
• The price level does not affect
these variables in the long run.
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The Long-Run Aggregate-Supply Curve
Price
Level
Long-run
aggregate
supply
P
P2
2. . . . does not affect
the quantity of goods
and services supplied
in the long run.
1. A change
in the price
level . . .
0
Natural rate
of output
Quantity of
Output
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THE LRAS CURVE
• So…In the long run, the aggregate-supply curve
is vertical at what we call the natural rate of
output
• This is also called its potential output or
full-employment output
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Comparing PPC to LRAS
These are just 2 ways to show the same thing:
The ultimate potential—the full capability—
of your economy overall.
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Why the Long-Run Aggregate-Supply Curve
Might Shift
• Any change in the economy that alters the
natural rate of output shifts the long-run
aggregate-supply curve.
• The shifts may be categorized according to the
various factors of production that affect output.
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Why the Long-Run Aggregate-Supply Curve
Might Shift
• Shifts arising
•
•
•
•
Labor
Capital
Natural Resources
Technological Knowledge
AND
• Gov’t Policies
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AGAIN…Long-run Economic Growth
can be represented by 2 different
models in Macroeconomics
Macroeconomic Growth =
PPC shift = LRAS shift
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Long run analysis …
• Explains our business cycle over long periods
of time growing in GDP output…and our slow,
steady price rises
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Long-Run Growth and Inflation
2. . . . and growth in the
money supply shifts
aggregate demand . . .
Long-run
aggregate
supply,
LRAS1980 LRAS1990 LRAS2000
Price
Level
1. In the long run,
technological
progress shifts
long-run aggregate
supply . . .
P2000
4. . . . and
ongoing inflation.
P1990
Aggregate
Demand, AD2000
P1980
AD1990
AD1980
0
Y1980
Y1990
Quantity of
Output
3. . . . leading to growth
in output . . .
Y2000
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NOW---let’s put the graphs together:
The Long-Run Equilibrium—LRAS, AS, AD
Price
Level
LRAS--Long-run
aggregate
supply
SRAS--Short-run
aggregate
supply
A
Equilibrium
price
Aggregate
demand
0
Natural rate
of output
GDP--Quantity of
Output
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Long-Run Macroeconomic
Equilibrium
• Long-Run
Macroeconomic
Equilibrium
• Recessionary Gap
• Self-Correction
• Inflationary Gap
• Self-Correction
• Output Gap: % diff
between Ye from Yp
100 x (Ye-Yp)/Yp
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