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- Skluzavka: 1
- Hey Rob, did you hear those people in the news today talking about 'menu costs' and 'sticky wages '?Also, how are you levitating??
- Yes, allow me to explain and elevate you to my level.
- Menu Costs occur when a business is trying to change their prices. Adjusting their price incurs extra expenses -- if a cafe changes their prices, they'll need to print tons of new copies. This is why prices don't immediately change in the short run.
- Sticky wages are wages that don't change immediately in response to an economic change like a recession because of long-term contracts, productivity concerns, and even social norms.
- Skluzavka: 2
- Of course, Tom -- you're almost at my level. Now let's break down AD and AS. AD = Aggregate Demand and it represents the total spending on goods + services at varying price levels.It is equal to the GDP formula. And it shifts when any components change.
- Thanks Rob! Now I'm starting to levitate from my econ knowledge! But I still can't figure out what AD, AS, and LRAS are.
- Now for SRAS and LRAS. There are two aggregate supply curves: short-run and long-run. Short-run is upward sloping because in the short-run firms will increase production as price level increases. It shifts due to production costs, productivity/disruptions, regulations. The Long-run is a vertical line. It will only shift if there is long-term growth or decline. Since wages and prices are fully flexible, the economy returns to full employment output which is seen by the LRAS curve.
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