This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: -when price increase, wages are sticky then real wage decreases-recall labor market-in equilibrium, unemployement rate=natural rate-then real GDP=potential GDP-when price increases, real wage decreases-then unemployment rate < natural rate-which means real GDP>potential GDP-so in SR, when price increases, so does Real GDP-in SR, Price increase, move along SRAS-Why? real wage decreases-so firms can produce more-in Long run wages not stickey-wages increase-this will shift SRAS-So in LR, real GDP=potential GDP-only change in economy is that prices are higher-keynesian exonomies ar concerned with temportary burst in real GDP-When LRAS shifts to right, economic growth 1) Increase in full employement quality of labor a. When LD=LS farther to right, increase in LRAS 2) Increase in capital or technology a. Increase in LRAS...
View Full Document
- Fall '06