Irfan Best
more than 3 weeks ago
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more than 3 weeks ago
Sticky wages refer to the phenomenon where wages do not adjust quickly to changes in the overall level of prices or demand in the economy. This can lead to inefficiencies in the labor market and contribute to unemployment during economic downturns.
Aggregate supply refers to the total supply of goods and services produced by an economy at a given price level over a certain period of time. It is typically represented by the aggregate supply curve, which shows the relationship between the price level and the quantity of output that firms are willing to produce. Changes in factors such as input prices, technology, and government regulations can shift the aggregate supply curve.
Aggregate supply refers to the total supply of goods and services produced by an economy at a given price level over a certain period of time. It is typically represented by the aggregate supply curve, which shows the relationship between the price level and the quantity of output that firms are willing to produce. Changes in factors such as input prices, technology, and government regulations can shift the aggregate supply curve.
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Google Gemini AI
more than 3 weeks ago
Sticky Wages
- Definition: Wages that are slow to adjust to changing market conditions, either upward or downward.
- Causes:
- Labor market imperfections (e.g., unions, minimum wages)
- Social norms and conventions
- Menu costs (the expense of changing prices)
- Information asymmetry (employees may not be aware of market wages)
- Consequences:
- Unemployment in downturns (wages don't fall quickly enough to absorb excess workers)
- Inflation in upturns (wages rise faster than productivity, driving up costs)
Aggregate Supply
- Definition: The total amount of goods and services that an economy is willing and able to supply at different price levels in a given time period.
- Determinants:
- Production capacity
- Labor force size
- Technology
- Resource availability
- Expectations
- Types of Aggregate Supply Curves:
- Horizontal: Supply is perfectly inelastic, indicating that output will not change regardless of price.
- Upward-sloping: Output increases as the price level rises, indicating that producers are willing to supply more at higher prices.
- Backward-bending: Output initially increases as the price level rises, but then decreases after a certain point, indicating that producers are discouraged from supplying at very high prices.
Relationship between Sticky Wages and Aggregate Supply
- Sticky wages can influence aggregate supply by slowing down the adjustment to market changes.
- During an economic downturn, sticky wages can prevent wages from falling as quickly as they should, leading to higher unemployment.
- Conversely, during an economic upturn, sticky wages can prevent wages from rising as quickly as they could, contributing to lower inflation.
- As a result, sticky wages can make it more difficult for the economy to reach equilibrium and achieve full employment without inflation.
- Definition: Wages that are slow to adjust to changing market conditions, either upward or downward.
- Causes:
- Labor market imperfections (e.g., unions, minimum wages)
- Social norms and conventions
- Menu costs (the expense of changing prices)
- Information asymmetry (employees may not be aware of market wages)
- Consequences:
- Unemployment in downturns (wages don't fall quickly enough to absorb excess workers)
- Inflation in upturns (wages rise faster than productivity, driving up costs)
Aggregate Supply
- Definition: The total amount of goods and services that an economy is willing and able to supply at different price levels in a given time period.
- Determinants:
- Production capacity
- Labor force size
- Technology
- Resource availability
- Expectations
- Types of Aggregate Supply Curves:
- Horizontal: Supply is perfectly inelastic, indicating that output will not change regardless of price.
- Upward-sloping: Output increases as the price level rises, indicating that producers are willing to supply more at higher prices.
- Backward-bending: Output initially increases as the price level rises, but then decreases after a certain point, indicating that producers are discouraged from supplying at very high prices.
Relationship between Sticky Wages and Aggregate Supply
- Sticky wages can influence aggregate supply by slowing down the adjustment to market changes.
- During an economic downturn, sticky wages can prevent wages from falling as quickly as they should, leading to higher unemployment.
- Conversely, during an economic upturn, sticky wages can prevent wages from rising as quickly as they could, contributing to lower inflation.
- As a result, sticky wages can make it more difficult for the economy to reach equilibrium and achieve full employment without inflation.
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