Macroeconomics

‭An‬ ‭increase‬‭in‬‭the‬‭price‬‭level‬‭increases‬‭SRAS‬‭leading‬‭to‬ ‭a‬‭movement‬‭along‬‭its‬‭curve‬ ‭from‬‭left‬‭to‬‭right‬ ‭(expansion).‬‭Alternatively,‬‭a‬‭decrease‬‭in‬‭the‬‭price‬‭level‬‭decreases‬‭SRAS‬‭leading‬‭to‬‭a‬‭movement‬‭along‬‭its‬ ‭curve from right to left (contraction).‬

‭An‬‭increase‬‭in‬‭output‬‭in‬‭the‬‭short‬‭run‬‭is‬‭associated‬‭with‬‭an‬‭increase‬‭in‬‭employment.‬‭With‬‭the‬‭labor‬‭force‬ ‭held‬ ‭constant,‬ ‭unemployment‬ ‭will‬ ‭decrease.‬ ‭Since‬ ‭output‬ ‭increases‬ ‭with‬ ‭an‬ ‭increase‬‭in‬‭price,‬‭we‬‭can‬ ‭deduce‬‭that‬‭there‬‭is‬ ‭a‬‭short-run‬‭trade-off‬‭between‬‭inflation‬‭and‬‭unemployment‬ ‭,‬‭because‬‭if‬‭the‬‭price‬ ‭level decreases, output decreases causing a drop in employment.‬ ‭Determinants of Aggregate Supply: Shifts of the SRAS Curve‬ ‭Changes‬ ‭in‬ ‭certain‬ ‭factors,‬ ‭excluding‬ ‭the‬ ‭price‬ ‭level,‬ ‭cause‬ ‭the‬ ‭SRAS‬‭curve‬‭to‬‭shift‬‭indicating‬‭either‬‭a‬ ‭higher‬ ‭or‬ ‭a‬ ‭lower‬ ‭aggregate‬ ‭output‬ ‭at‬ ‭a‬‭given‬‭price‬‭level.‬‭A‬‭shift‬‭of‬‭the‬‭SRAS‬‭curve‬‭to‬‭right‬‭reflects‬‭an‬ ‭increase‬‭in‬‭SRAS‬‭which‬‭indicates‬‭that‬‭the‬‭economy’s‬‭capacity‬‭has‬‭increased,‬‭whereas‬‭a‬‭shift‬‭of‬‭the‬‭SRAS‬ ‭curve to the left reflects a decrease in SRAS which indicates that the economy’s capacity has decreased.‬

‭The‬ ‭factors‬ ‭that‬ ‭shift‬ ‭the‬ ‭SRAS‬ ‭curve‬ ‭are‬ ‭referred‬ ‭to‬ ‭as‬ ‭the‬ ‭determinants‬ ‭of‬ ‭SRAS‬ ‭and‬ ‭include‬ ‭the‬ ‭following:‬

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