The document discusses the AD/AS model, focusing on long run aggregate supply (LRAS).
1) LRAS is a vertical line, representing the theoretical idea that in the long run, changes in the price level do not affect real output. This comes from classical theories about the separation of nominal and real variables.
2) LRAS can shift due to changes in factors of production like labor, capital, and natural resources. A rightward shift increases potential output while a leftward shift decreases it.
3) Factors that can cause LRAS to shift right include increased investment, population growth, and technological advances, while shifts left can occur due to depleted resources or lower investment.
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اگر آپ تعلیمی نیوز، رجسٹریشن، داخلہ، ڈیٹ شیٹ، رزلٹ، اسائنمنٹ،جابز اور باقی تمام اپ ڈیٹس اپنے موبائل پر فری حاصل کرنا چاہتے ہیں ۔تو نیچے دیے گئے واٹس ایپ نمبرکو اپنے موبائل میں سیو کرکے اپنا نام لکھ کر واٹس ایپ کر دیں۔ سٹیٹس روزانہ لازمی چیک کریں۔
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American Economic Association Some International Evid.docxnettletondevon
American Economic Association
Some International Evidence on Output-Inflation Tradeoffs
Author(s): Robert E. Lucas, Jr.
Source: The American Economic Review, Vol. 63, No. 3 (Jun., 1973), pp. 326-334
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/1914364
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Some International Evidence on
Output-Inflation Tradeofs
By ROBERT E. LUCAS, JR.*
This paper reports the results of an
empirical study of real output-inflation
tradeoffs, based on annual time-series from
eighteen countries over the years 1951-67.
These data are examined from the point
of view of the hypothesis that average
real output levels are invariant under
changes in the time pattern of the rate of
inflation, or that there exists a "natural
rate" of real output. That is, we are con-
cerned with the questions (i) does the
natural rate theory lead to expressions of
the output-inflation relationship which
perform satisfactorily in an econometric
sense for all, or most, of the countries in
the sample, (ii) what testable restrictions
does the theory impose on this relation-
ship, and (iii) are these restrictions con-
sistent with recent experience?
Since the term "'natural rate theory"
refers to varied aggregation of models and
verbal developments,' it may be helpful
to sketch the key elements of the particular
version used in this paper. The first
essential presumption is that nominal out-
put is determined on the aggregate demand
side of the economy, with the division
into real output and the price level largely
dependent on the behavior of suppliers of
labor and goods. The second is that the
partial "rigidities" which dominate short-
run supply behavior result from suppliers'
lack of information on some of the prices
relevant to their decisions. The third
presumption is that inferences on these
relevant, unobserved prices are made
optimally (or "rationally") in light of the
stochastic character of the economy.
As I have argued elsewhere (1972),
theories developed along these lines will
not place testable restrictions on the co-
efficients of estimated Phillips curves or
other single equation expressions of the
tradeoff. They will not, for examp.
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2. AD / AS Model
3.) Short Run Aggregate Supply
1.) Philosophy Bias introduction
2.) Long Run Aggregate Supply
4.) Aggregate Demand
Philosophy part has been removed,
if desired you can download with
the class version PPT.
4. Price
level
GDP
PE
LRAS
YN
Graph, trying to explain
the entire economy all
at the same time
Macroeconomics
AD/AS Model
Focus on this curve first, this part
first, might seem like a backwards
way to learn it, but this was the
first curve that was understood
through history.
5. AD / AS Model
3.) Short Run Aggregate Supply
1.) Philosophy Bias introduction
2.) Long Run Aggregate Supply
4.) Aggregate Demand
2.2) LRAS slope
2.3) LRAS shifts
2.1) Classical theory
6. 2.1) Classical Theory
Different parts of this theory that brings us to the conclusions we will work with:
Classical Dichotomy
Quantity Theory of Money
Neutrality of Money
Velocity of Money
- the theoretical 理论 separation of
nominal and real variables.
Hume and the classical economists
suggested that monetary developments
affect nominal variables but not real
variables.
7. all nominal variables –
including prices –
will double.
Nominal variables Real variables
all real variables –
including relative prices –
will remain unchanged.
for example:
If central bank doubles the money supply:
2.1) Classical Theory
8. Gross Domestic Product
(GDP)
国内生产总值
- the total market value of all
goods and services produced
over a specific time period.
- one the primary indicators
used to gauge 测量 the health of
a country's economy.
you can think of it as the
size of the economy.
The same concept of separating
real and nominal variables can also
be seen here.
9. Nominal GDP Real GDP
The Real economy –
Real factors that are independent
of the price level. (actual stuff)
The Money economy –
Measured in the current prices of
output.
2.1) Classical Theory
11. 2.1) Classical Theory
Different parts of this theory that brings us to the conclusions we will work with:
Classical Dichotomy
Quantity Theory of Money
Neutrality of Money
Velocity of Money
(Q of Money) - The quantity of
money determines the
value of money.
12. Marvel
Land
DC
Land
Marvel Land
Money
DC land
Money
(Country B)(Country A)
FOREX graph example
D from B D from A
S from BS from A
So A money =
more valuable
B/A A/B
And B money =
less valuable
Remember this…Remember this?
Value of
money is
based on the
supply and
demand for
the money.
13. 2.1) Classical Theory
Different parts of this theory that brings us to the conclusions we will work with:
Classical Dichotomy
Quantity Theory of Money
Neutrality of Money
Velocity of Money
(N of Money) - In the long run, the overall
price level adjusts to the
level at which the demand
for money equals the
supply of money.
(nominal changes don’t affect real changes)
14. Price
level
GDP
LRAS
Y
P1
P2
2.2) Long Run Aggregate Supply
Long Run
Aggregate Supply
(LRAS)
Change in
money supply
and prices
DON’T change
endowments
能力of factors of
production
Therefore due to
these theories,
prices are
flexible so this
helps explains
why the curve is
vertical.
15. 2.1) Classical Theory
Different parts of this theory that brings us to the conclusions we will work with:
Classical Dichotomy
Quantity Theory of Money
Neutrality of Money
Velocity of Money (V of Money)
Deal with this later when
studying Inflation.
16. AD / AS Model
3.) Short Run Aggregate Supply
1.) Philosophy Bias introduction
2.) Long Run Aggregate Supply
4.) Aggregate Demand
2.2) LRAS slope
2.3) LRAS shifts
2.1) Classical theory
17. 0
1,000
2,000
3,000
4,000
5,000
6,000
0 100 200 300 400 500 600
AxisTitle
Axis Title
The PPC could be a
straight line, or bow-
shaped.
Depends on what
happens to
opportunity cost
as economy shifts
resources from one
industry
to the other.
Production Possibilities Curve
枪炮
黄油
Similar idea as this..
The concept here is
similar, just
instead of trade-
offs of the 2
goods…
18. Price
level
GDP
LRAS
YN
Graph, trying to explain
the entire economy all
at the same time
Macroeconomics
2.) Long Run Aggregate Supply
P1
P2
It’s the trade-off
between the price level
and the whole economy.
The theory is that in
the long run there
really is no trade off, so
it’s a vertical line.
19. Long Run
Aggregate Supply
(LRAS)
- Total average output of an
economy over the long run.
also called
potential output
or
full-employment
output
2.2) Long Run Aggregate Supply
Y*t = f (L, K, M)
Y* is potential output.
t is the time period.
L is the quantity and ability of labor
input available.
K is the available capital stock.
M is the availability of natural
resources.
(factors of production)
20. AD / AS Model
3.) Short Run Aggregate Supply
1.) Philosophy Bias introduction
2.) Long Run Aggregate Supply
4.) Aggregate Demand
2.2) LRAS slope
2.3) LRAS shifts
2.1) classical theory
21. 0
1,000
2,000
3,000
4,000
5,000
6,000
0 100 200 300 400 500 600
AxisTitle
Axis Title
Consumption
goods
Capital
goods
Economic Growth
- Sustained expansion of
the production
possibilities frontier
- to have economic
growth means to
increase the PPF so
more can be produced
without having to
trade-off for as much.
Production Possibilities CurveSimilar idea as this..
Growing this shows
growth...
24. Long Run
Aggregate Supply
(LRAS)
Shifting LRAS
2.3) Long Run Aggregate Supply
- Changes in L (natural rate of
unemployment)
- Changes in population
examples:
shift right:
- Immigration
- More people get
college degrees
- Lots of older people
retire 退休
- Govt policies reduce
changing job rates
shift left:
25. Long Run
Aggregate Supply
(LRAS)
2.3) Long Run Aggregate Supply
- Changes in K
- Changes in Technology
Shifting LRAS
examples:
- Investment in factories,
equipment
- Productivity improvements
from better technology
- Factories destroyed
by a hurricane飓风
shift left: shift right:
26. Long Run
Aggregate Supply
(LRAS)
2.3) Long Run Aggregate Supply
- Changes in M
- Changes in Natural Resources
Shifting LRAS
examples:
shift left:
- Discovery of new
mineral deposits 矿藏
- Changing weather
patterns that affect farming
- Discovery of new
mineral deposits 矿藏
shift right:
28. 2.1) Classical Theory
Different parts of this theory that brings us to the conclusions we will work with:
Classical Dichotomy
Quantity Theory of Money
Neutrality of Money
Velocity of Money
(Q of Money)
(N of Money)
(V of Money)
29. Long Run Aggregate Supply
Long Run
Aggregate Supply
(LRAS)
Change in
money supply
and prices
DON’T change
endowments
能力of factors of
production
***Prices are
flexible
Price
level
GDP
LRAS
Y
P1
P2
30. Price
level
GDP
LRAS
Y
LRAS1
Y 1
Long Run Aggregate Supply
Shifting LRAS
LRAS2
Y
2
Y*t = f (L, K, M)
- Anything that changes these
factors of production
Long Run
Aggregate Supply
(LRAS)