Aggregate Supply Curve- 02/27/2017

Aggregate Supply Curve

Reasons why prices tend to be inflexible or sticky in a downward direction
1) fear of price wars
2) wage contracts
3) minimum wage
4) menu cost
5) morale effort +productivity

Range 1:
- Output is low, relative to the economy’s full employment output
- unemployment increase, real GDP decrease

Range 2:
-Output expands as spending increases

Range 3:
-In the long run, aggregate supply curve is vertical because the only effects of the increase in AD when we’re already at full employment or an increase in the price level