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Appendix 11.A Labor Contracts and Nominal-Wage Rigidity
Copyright ©2014 Pearson Education11A-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
Copyright ©2014 Pearson Education11A-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
Copyright ©2014 Pearson Education11A-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
Copyright ©2014 Pearson Education11A-5 Figure 11.A.1 Monetary nonneutrality with long-term contracts
Copyright ©2014 Pearson Education11A-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
Copyright ©2014 Pearson Education11A-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
© 2008 Pearson Addison-Wesley. All rights reserved Appendix 11.A Labor Contracts and Nominal-Wage Rigidity.
Supplemental Slides From Class Aggregate Supply Chapter 13-7 th and 14-8 th edition.
1 9. Keynesian Macroeconomics in the AD-AS Model Abel, Bernanke and Croushore (chapter 11)
Chapter 12 Keynesian Business Cycle Analysis: Non–Market-Clearing Macroeconomics Copyright © 2012 Pearson Education Inc.
5. The IS-LM model Abel, Bernanke and Croushore (chapters 9.4, 9.5 and 9.6)
1 Chp. 8: Business Cycles Focus: What is business cycle? Characteristics of Business Cycles Stylized facts about business cycles.
AGGREGATE DEMAND and AGGREGATE SUPPLY II. how to derive un upward sloping aggregate supply in the short-run: Sticky prices; Sticky wages; Lucas’
Copyright © 2011 Pearson Education. All rights reserved. Business Cycles Chapter 8.
Copyright © 2002 Pearson Education, Inc. Aggregate Demand Aggregate demand for current output, Y d, is: Y d = C + I + G + NX. The AD curve slopes downward.
Chapter 7 Aggregate demand and supply: an introduction.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 12 Keynesian Business Cycle Theory: Sticky Wages and Prices.
Copyright © 2010 Pearson Education. All rights reserved. Chapter 22 Aggregate Demand and Supply Analysis.
© 2008 Pearson Addison-Wesley. All rights reserved 9-1 Chapter Outline The FE Line: Equilibrium in the Labor Market The IS Curve: Equilibrium in the Goods.
1 Appendix 14A The Self-Correcting Aggregate Demand and Supply Model ©2004 South-Western.
Chapter 12 Keynesian Business Cycle Analysis: Non-Market-Clearing Macroeconomics Economics 282 University of Alberta.
Chapter 14 New Keynesian Economics: Sticky Prices Copyright © 2014 Pearson Education, Inc.
Aggregate demand and supply. Aggregate supply is the quantity of output firms are willing to supply, for each given price level. Aggregate supply is the.
Activity 41 The neutrality of money. Money is neutral In the long run changes in money supply will only change price level and have no change on real.
1 Aggregate Supply: Short – Run & Long – Run. 2 Short-run Aggregate Supply Aggregate Supply (AS) shows the quantity of real GDP produced at different.
The Theory of Aggregate Supply Short Run Aggregate Supply Curve.
Chapter 8 Business Cycles Copyright © 2016 Pearson Canada Inc.
New-Keynesian Theory of Aggregate Supply Efficiency Wages.
ECON 101 Tutorial: Week 19 Shane Murphy Office Hours: Monday 3:00-4:00 – LUMS C85.
Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Chapter 7 Aggregate Demand, Aggregate Supply, and the Self-Correcting Economy.
Lesson 7-2 Aggregate Supply. Aggregate Supply: the Long Run and The Short Run Basic Definitions The short run in macroeconomic analysis is a period in.
© 2008 Pearson Addison-Wesley. All rights reserved 11-1 Chapter Outline Real-Wage Rigidity Price Stickiness Monetary and Fiscal Policy in the Keynesian.
© 2008 Pearson Education Canada24.1 Chapter 24 Aggregate Demand and Supply Analysis.
1.The Classical theory of employment 2.Labor supply and the expected real wage 3.Potential output and the “natural rate” of unemployment. 4.The short-run.
Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 7 Aggregate Demand, Aggregate Supply, and the Self-Correcting Economy.
Chapter 11 Classical Business Cycle Analysis: Market-Clearing Macroeconomics Copyright © 2012 Pearson Education Inc.
Copyright © 2010 Pearson Addison-Wesley. All rights reserved. Chapter 23 Aggregate Demand and Supply Analysis.
Aggregate Demand and Supply. Aggregate Demand (AD)
Chapter 13: Aggregate Supply. The Model The relationship between production of goods and services and the general price level Y = Y + α (P – P e ) Where.
1 Chapter 25 Aggregate Demand and Aggregate Supply.
1 KEYNESIAN ECONOMICS J.A. SACCO. 2 Classical Theory Review All resources fully used No unused capacity Full employment/ Supplied determined Economy is.
+ Aggregate Supply Chapter Aggregate Supply (AS) Is the total amount of goods and services that all the firms in all the industries in a country.
Topic 9 Aggregate Demand and Aggregate Supply 1. 2 The Aggregate Demand Curve When price level rises, money demand curve shifts rightward Consequently,
Aggregate Supply The quantity of output that firms are willing and able to produce for the economy In the long run, the level of output depends on the.
Chapter 9 The IS—LM/AD—AS Model: A General Framework for Macroeconomic Analysis.
Chapter 9 The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis.
Chapter 3 The Demand for Labor. Copyright © 2003 by Pearson Education, Inc.3-2.
Chapter 7: Putting All Markets Together: The AS – AD Model Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier.
Chapter 11 Classical Business Cycle Analysis: Market-Clearing Macroeconomics Copyright © 2015 Pearson Canada Inc.
Review of the previous lecture 1. IS-LM model a theory of aggregate demand exogenous: M, G, T, P exogenous in short run, Y in long run endogenous:
Chapter 9 The IS-LM/AD-AS Model: A General Framework for Macroeconomic Analysis Economics 282 University of Alberta.
Long Run Long Run Aggregate Supply. While engaged in a lesson on long- run aggregate supply, you will analyze the qualities of aggregate supply in the.
Putting All Markets Together: The AS–AD Model Chapter 7.
Unemployment Chapter 7. 2 ©1999 South-Western College Publishing Figure 7.1 The supply of labor is a flow into the labor market. Stock of unemployed The.
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