What is as curve, Macroeconomics

Assignment Help:

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


Related Discussions:- What is as curve

Open market policy, describe how open market policy can be used to stimulat...

describe how open market policy can be used to stimulate economic activity in the country

State the market for overnight loans, State the market for overnight loans ...

State the market for overnight loans Overnight interest rates are rates for loans over a single night - these are the shortest of all interest rates. During the day, banks norm

Illustrate opportunity cost of producing extra units, If the opportunity co...

If the opportunity cost of producing extra units of one good (expressed in terms of the amount of another good that is sacrificed) remains constant, then the shape of the productio

Faced trade-offs, Provide an example of a decision in which you faced trade...

Provide an example of a decision in which you faced trade-offs, considered opportunity costs and evaluated the options by comparing the marginal benefits and the marginal costs ass

Define demand-side growth, Define demand-side growth First, demand-si...

Define demand-side growth First, demand-side growth is caused by a change in one of the components of aggregate demand. If any of the components enhances (investment, consump

Money, who are cheap money;gainers and losers

who are cheap money;gainers and losers

Quantity theory of money, what is the importance of the quantity theory of ...

what is the importance of the quantity theory of money

Nine patients are selected at random, A recent study in NJ showed that 50% ...

A recent study in NJ showed that 50% of all patients will return to the same dentist. Suppose nine patients are selected at random, what is the probability that: (a) exactly five o

Inflation, inflation of fuel price on consumer

inflation of fuel price on consumer

Demand and supply, Suppose the demand and supply for milk is described by t...

Suppose the demand and supply for milk is described by the following equations Qd=600-100P; Qs=-150+150P Where P is the price in rand, Qd is the quantity demanded in millions of l

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd