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ADJUSTMENT, LONG-RUN AGGREGATE MARKET: Disequilibrium in the long-run aggregate market induces changes in the price level that restore equilibrium. If the price level is above the long-run equilibrium price level, economy-wide product market surpluses cause the price level to fall. If the price level is below the long-run equilibrium price level, economy-wide product market shortages cause the price level to rise. In both cases long-run equilibrium is restored. Price level changes induce changes in aggregate expenditures but NOT changes in real production. The reason is that long-run aggregate supply is full-employment real production, which is unaffected by the price level.
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AGGREGATE SUPPLY SHIFTS Changes in the aggregate supply determinants shift both the short-run aggregate supply curve and the long-run aggregate supply curve. The mechanism is comparable to that for market supply determinants and market supply. There are two options--an increase in aggregate supply and a decrease in aggregate supply. An increase in resource quantity or quality or a decrease in resource price shifts one or both of the aggregate supply curves to right. A decrease in resource quantity or quality or an increase in resource price shifts one or both of the aggregate supply curves to left.
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BEIGE MUNDORTLE
[What's This?]
Today, you are likely to spend a great deal of time strolling through a department store looking to buy either handcrafted decorations to hang on your walls or throw pillows for your bed. Be on the lookout for fairy dust that tastes like salt.
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This isn't me! What am I?
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Woodrow Wilson's portrait adorned the $100,000 bill that was removed from circulation in 1929. Woodrow Wilson was removed from circulation in 1924.
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"Only great minds can afford a simple style." -- Stendhal, writer
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IARA
Increasing Absolute Risk Aversion
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