UNIT 5 & 6
I. Short Run Aggregate Supply
- Time to short for wages to adjust to the price level
- Workers may not be aware of changes in there real wages due to inflation and have adjusted their labor supply decision in wage demand accordingly
Nominal Wages: Amount of money received per hour, day, or year.
Sticky Wages: Nominal wage level that is set accordingly to initial price level and doesn't vary Time long enough for wages to adjust to the price level.
1. Keynesian/Horizontal
2. Intermediate
3. Classical/Vertical
Long Aggregate: Time long enough for wages to adjust to price level.
LRAS:
1. Price level and wage level are flexible
2. Changes in wage and price level off set each other
The Long Run Phillips Curve exists as the natural rate of employment. Structural changes in the economy that affect unemployment will also cause the LRPC to shift.
INCREASE in UNEMPLOYMENT = LRPC SHIFT RIGHT
DECREASE in UNEMPLOYMENT = LRPS SHIFT LEFT
To increase the economy, you would shift the AS Curve to the right. Supply side economists focus on the marginal tax rate.
MARGINAL TAX RATE: The amount paid on the last dollar earned or on each additional dollar earned.
Lowered taxes are an incentive for workers to work hard thereby becoming more productive.
Lowered taxes are incentives for people to increase savings, therefore creating lower interest rates which causes an increase in business investments.
REAGANOMICS: Supply side economists support policies that promote GDP growth. By arguing that high marginal tax rates along with current system of transfer payments such as unemployment, compensation, or welfare programs provide dis-insensitive to work, invest, innovate, and undertake entrepreneur ventures.
Laffer Curve is a trade off between tax rates and government revenue used to supply the Supply side argument.
Great blog! Supply Side Economics is a belief that AS curve will determine levels of inflation, unemployment, and economic growth. Supply Side Economists focus on marginal tax rate.
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