Module Aggregate Supply: Introduction and Determinants KRUGMAN'S MACROECONOMICS for AP* 18 Margaret Ray and David Anderson.

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Module Aggregate Supply: Introduction and Determinants KRUGMAN'S MACROECONOMICS for AP* 18 Margaret Ray and David Anderson

Modules 18 & 19 Aggregate supply and equilibrium Reading

What you will learn in this Module : How the aggregate supply curve illustrates the relationship between the aggregate price level and the quantity of aggregate output supplied in the economy What factors can shift the aggregate supply curve Why the aggregate supply curve is different in the short run from in the long run

The relationship between the price level and the real GDP supplied Aggregate Supply

Short-Run Aggregate Supply Curve (SRAS) Why does it slope upwards?

Sticky Nominal Wages Nominal wage = what you get paid in current dollars. Not real wage. Why are nominal wages “sticky”? What would you do if prices went up by 1% this month.

Sticky Nominal Wages Price level increases. Nominal wages don’t rise as fast. Business profits increase. Hire more workers, produce more.

Sticky Nominal Wages Price level decreases. Nominal wages don’t fall as fast. Business profits decrease. Layoff workers, produce less..

Shifts of the Short-Run Aggregate Supply Curve ∆ Commodity Prices ∆ Nominal Wages ∆ Productivity

Team activity – SRAS Shifts Left side shift out, right side shift in. Team 1 – commodity prices Team 2 – nominal wages Team 3 - productivity

Individual – SRAS Shifts Activity # 24 – SRAS scenarios

The Long-Run Aggregate Supply Curve Flexible Wages Long Run LRAS Potential Output Factors that shift LRAS!

What factors shift the LRAS? Create a Word Wall

From the Short Run to the Long Run

Summary SRAS Change in Quantity of Output Shift in SRASShift in LRAS Sticky nominal wages Business profits. Fluctuations in: Commodity prices Nominal Wages Productivity Exogenous shocks Permanent growth: More resources Human capital Technology

Exit Ticket Aggregate Supply Scenarios