What factors shift the short-run aggregate supply curve? Do any of these factors shift the long-run aggregate supply curve? Why?

Short Answer

Expert verified

Price fluctuations, changes in predicted inflation, and persistent output gaps are factors that influence the short-term aggregate supply curve.

Any factor that changes the short-term aggregate supply curve is the short-term aggregate supply curve. Does not shift. The economic direction is temporary and modifies itself.

Step by step solution

01

Step 1. Define aggregate supply.

Aggregate supply, also called as domestic final supply, is the total range of products and services that an economic company intends to sell in a particular period of time.

02

Step 2. What factors cause the short-run aggregate supply curve to shift? Do any of these factors have an effect on the long-run aggregate supply curve? Why?

Price fluctuations, changes in predicted inflation, and persistent output gaps are factors that influence the short-term aggregate supply curve. Changes in total capital in the economy, changes in available technologies, changes in total labor provided by the economy, and changes in the natural rate of unemployment are all factors that change the long-term aggregate supply curve. Since the short-term direction of the economy is temporary and self-correcting, none of the causes of changing the SRAS curve shift the LRAS curve. Ultimately, this leads the economy to a lasting long-term equilibrium.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Go to the St. Louis Federal Reserve FRED database, and find data on the M1 Money Stock (M1SL), M1 Money Velocity (M1V), and Real GDP (GDPC1). Convert the M1SL data series to “quarterly” using the frequency setting, and for all three series, use the “Percent Change from Year Ago” setting for units.

a. Calculate the average percentage change in real GDP, the M1 money stock, and velocity since 2000:Q1.

b. Based on your answer to part (a), calculate the average inflation rate since 2000 as predicted by the quantity theory of money.

c. Next, find the data on the GDP deflator price index (GDPDEF), download the data using the “Percent Change from Year Ago” setting, and calculate the average inflation rate since 2000:Q1. Comment on the value relative to your answer in part (b).

John Maynard Keynes is among the most well-known economic theorists. Go to http://en.wikipedia.org/wiki/ John_Maynard_Keynes and write a one-page summary of his life and contributions.

Wikipedia has a detailed account of hyperinflationary episodes in a number of countries throughout history. Go to the page at https://en.wikipedia.org/wiki/ Hyperinflation#Notable_hyperinflationary_episodes. Which of the countries listed had the worst hyperinflationary episode? Which country has the most recent hyperinflationary episode?

If velocity and aggregate output are reasonably constant (as the classical economists believed), what will happen to the price level when the money supply increases from \(1trillion to \)4trillion?

Why would a central bank be concerned about persistent, long-term budget deficits?

See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free