We think you have liked this presentation. If you wish to download it, please recommend it to your friends in any social system. Share buttons are a little bit lower. Thank you!
Presentation is loading. Please wait.
Published byCristal Cottman
Modified about 1 year ago
© 2008 Pearson Addison-Wesley. All rights reserved Appendix 11.A Labor Contracts and Nominal-Wage Rigidity
© 2008 Pearson Addison-Wesley. All rights reserved 11-2 Appendix 11.A: Labor Contracts and Nominal- Wage Rigidity Some Keynesians think the nonneutrality of money is because of nominal-wage rigidity, not nominal-price rigidity –Nominal wages could be rigid because of long-term contracts between firms and unions –With nominal-wage rigidity, the short-run aggregate supply curve slopes upward instead of being horizontal –Even so, the main results of the Keynesian model still hold
© 2008 Pearson Addison-Wesley. All rights reserved 11-3 Appendix 11.A: Labor Contracts and Nominal- Wage Rigidity The short-run aggregate supply curve with labor contracts –U.S. labor contracts usually specify employment conditions and the nominal wage rate for three years –Employers decide on workers' hours and must pay them the contracted nominal wage –The result is an upward-sloping short-run aggregate supply curve As the price level rises, the real wage declines, since the nominal wage is fixed As the real wage declines, firms hire more workers and thus increase output
© 2008 Pearson Addison-Wesley. All rights reserved 11-4 Appendix 11.A: Labor Contracts and Nominal- Wage Rigidity Nonneutrality of money –Money isn't neutral in this model, because as the money supply increases, the AD curve shifts along the fixed (upward-sloping) SRAS curve (Fig. 11.A.1) –As a result, output and the price level increase –Over time, workers will negotiate higher nominal wages and the SRAS curve will shift left to restore general equilibrium –Thus money is nonneutral in the short run but neutral in the long run
© 2008 Pearson Addison-Wesley. All rights reserved 11-5 Figure 11.A.1 Monetary nonneutrality with long- term contracts
© 2008 Pearson Addison-Wesley. All rights reserved 11-6 Appendix 11.A: Labor Contracts and Nominal- Wage Rigidity Nonneutrality of money –There are several objections to this theory Less than one-sixth of the U.S. labor force is unionized and covered by long-term wage contracts; however, some nonunion workers get wages similar to those in union contracts, and other workers may have implicit contracts that act like long-term contracts
© 2008 Pearson Addison-Wesley. All rights reserved 11-7 Appendix 11.A: Labor Contracts and Nominal- Wage Rigidity Nonneutrality of money –There are several objections to this theory (cont.) Some labor contracts are indexed to inflation, so the real wage is fixed, not the nominal wage; however, most contracts aren't completely indexed The theory predicts that real wages will be countercyclical, but in fact they are procyclical; however, if there are both aggregate supply shocks and aggregate demand shocks, real wages may turn out on average to be procyclical, but could still be countercyclical for demand shocks
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 12 Keynesian Business Cycle Theory: Sticky Wages and Prices.
Over the business cycle, investment spending ______ consumption spending a)is inversely correlated with b)is more volatile than c)has about the.
Three Models of Aggregate Supply The sticky wage, imperfect- information, and sticky price models.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 11 Market-Clearing Models of the Business Cycle.
1 Aggregate Supply The AS is the part of our national economy model where the production side is studied.
© The McGraw-Hill Companies, The classical model of macroeconomics The CLASSICAL model of macroeconomics is the polar opposite of the extreme Keynesian.
Aggregate Demand and Supply Linking Monetary Policy to Price and Output.
Chapter 5 The IS-LM Model: Framework for Macroeconomic Analysis.
Aggregate Demand and Aggregate Supply in the Long Run A brief introduction to business cycles.
AGGREGATE DEMAND (AD): The quantity of real GDP demanded at different price levels. -The price level is measured using the GDP deflator. -The quantity.
AD and AS. AGGREGATE DEMAND (AD): The quantity of real GDP demanded (total quantity of G&S that all buyers in an economy want to buy) at different price.
AD and AS Tragakes 2012, chapter 9. Aggregate Demand Aggregate Demand (AD): The total quantity of aggregate output, or real GDP, that all buyers in an.
© 2010 Pearson Addison-Wesley CHAPTER 1. © 2010 Pearson Addison-Wesley.
Chapter 13 The Price Level, Real Output, and Economic Policymaking INTERNATIONAL MONETARY AND FINANCIAL ECONOMICS Third Edition Joseph P. Daniels David.
© 2010 Pearson Addison-Wesley. Quantity Supplied and Supply The quantity of real GDP supplied is the total quantity that firms plan to produce during.
Mr. Weiss Section 4 – Module 21– Effect on AD, SRAS and LRAS Curves 5. For each of the following, describe the effect on the AD, SRAS, and LRAS curves.
Ch. 10- The Short Run Aggregate Supply Curve By J.A.SACCO.
© 2010 Pearson Addison-Wesley. Inflation Cycles In the long run, inflation occurs if the quantity of money grows faster than potential GDP. In the short.
Chapter Nineteen1 A PowerPoint Tutorial to Accompany macroeconomics, 5th ed. N. Gregory Mankiw Mannig J. Simidian ® CHAPTER NINETEEN Advances in Business.
MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL 11 CHAPTER.
PowerPoint to accompany Chapter 13 Aggregate Demand and Aggregate Supply Analysis.
THE BUSINESS CYCLE 30 CHAPTER. Objectives After studying this chapter, you will able to Distinguish among the different theories of the business cycle.
INFLATION 28 CHAPTER. Objectives After studying this chapter, you will able to Distinguish between inflation and a one-time rise in the price level Explain.
International Economics Li Yumei Economics & Management School of Southwest University.
EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL 13 CHAPTER.
ECON 671 – International Economics Aggregate Demand & Supply in the Open Economy.
Slides prepared by Thomas Bishop Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Chapter 14 Money, Interest Rates, and Exchange Rates.
© 2016 SlidePlayer.com Inc. All rights reserved.