What is as curve, Macroeconomics

The AS curve

Say that nominal wage in year 1 (at a particular point in time) is equal to 1000. On the horizontal part of response curve, real wage is constant and equal to its maximum value. Let's say that (W/P) MAX = 10. On horizontal part P1 = 100 where P1 is the price level in year 1. Firms will use at most LB at this real wage. For firms to hire more than LB, P1should be higher than 10. We realize that AS curve at this point in time, AS1 will look like before. First, it's horizontal along P = 10, then for higher Y. it is upward sloping.

Assume that ΠW is equal to 10%. Subsequent year, nominal wages would be equal to 1100. Wages in year 2 are determined by ?Wthat is an exogenous variable, making wages in year 2 exogenous. As maximum real wage is given and equal to 10, we determine that P2 is equal 110 on the horizontal part of response curve and that P2> 110 on the downward sloping part. AS2 glides upwards up by 10% as given by wages inflation. Using same argument, P3 = 121 on horizontal part of the response curve at year 3 and so on.

Just like AD curve, AS curve is to glide downwards or upwards depending on whether ΠW < 0 or ΠW > 0 when we allow for inflation. As for AD curve, AS curve is applicable only at a specific point in time if ΠW ≠ 0. At another point in time, we should draw a new AS curve.

2466_What is AS curve.png

Figure: AS curve gliding if ΠW ≠ 0

Posted Date: 8/19/2013 3:53:09 AM | Location : United States

Related Discussions:- What is as curve, Assignment Help, Ask Question on What is as curve, Get Answer, Expert's Help, What is as curve Discussions

Write discussion on What is as curve
Your posts are moderated
Related Questions
Aggregate supply Remember that labor demand provides us profit-maximizing quantity of L for a given real wage. If W/P is given (as it's in cross model), we can find profit-maxi

Q. What do you meant by Investment? When we use the word investment, we characteristically mean 'gross investment'. Fundamentally, gross investment comprises all finished goods

What is the difference between the short-run framework and the long-run framework? Discuss how each relates to supply and demand.

Ask question #Minimum 100 words accepted I need help with homewok

The supply equation for widgets is P = 100 + 10QS. The elasticity of supply between quantity supplied of 9 and 11?

Financing of Fiscal Deficit: Since the size of balanced budget of the multiplier is small, it is not for all time possible to get the needed demand expansion by raising the exp

inflation of fuel price on consumer

In 1999 Mercedes-Benz USA adopted a new pricing policy, which it called NFP (negotiation-free process), that sought to eliminate price negotiations between customers and new-car de

I. Consider the following static optimization problem. Suppose that a consumer has financial wealth W and owns the house H¯ . She has utility over housing H and nonhousing co