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ADJUSTMENT, SHORT-RUN AGGREGATE MARKET: Disequilibrium in the short-run aggregate market induces changes in the price level that restore equilibrium. If the price level is above the short-run equilibrium price level, economy-wide product market surpluses cause the price level to fall. If the price level is below the short-run equilibrium price level, economy-wide product market shortages cause the price level to rise. In both cases short-run equilibrium is restored. You might want to compare adjustment, long-run aggregate market. Price level changes induce changes in both aggregate expenditures and real production. Unlike the long-run aggregate market, changes in the price level can induce changes in short-run aggregate supply, making it greater or less than full-employment real production.
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INFLATION CAUSES Inflation, the persistent increase in the average price level, can be caused by an increase in aggregate demand or a decrease in aggregate supply. This suggests two basics sources, causes, or types of inflation--demand-pull inflation and cost-push inflation. While short-term bouts of inflation (up to several months) can result from anything (determinant) that might cause either increases in aggregate demand or decreases in aggregate supply, long-term inflation (a year or more) is possible ONLY through persistent increases in the money supply. As such, while demand-pull inflation and cost-push inflation are convenient ways to catalog the transmission mechanisms of inflation, the ultimate CAUSE of inflation is money.
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YELLOW CHIPPEROON
[What's This?]
Today, you are likely to spend a great deal of time at a garage sale trying to buy either a replacement washer for your kitchen faucet or a stretchable, flexible watch band. Be on the lookout for jovial bank tellers.
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This isn't me! What am I?
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Much of the $15 million used by the United States to finance the Louisiana Purchase from France was borrowed from European banks.
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"Laughter is the shortest distance between two people. " -- Victor Borge, musician, humorist
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LRTC
Long Run Total Cost
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