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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.
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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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