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

Elasticity with respect to the price of gasoline, Suppose the annual demand...

Suppose the annual demand function for the Honda Accord is Qd = 430 - 10 PA + 10 PC - 10 PG where PA and PC are the prices of the Accord and the Toyota Camry respectively (in thous

Supply function for product, Suppose the supply function for product X is g...

Suppose the supply function for product X is given by Qsx = -50 + 0.5Px - 5Pz. A. How much of product X is produced when Px = $500 and Pz = $30? B. How much of product X is p

Marginal tax rates imposed on individuals and families, Compared with the s...

Compared with the situation before 1981, the marginal tax rates imposed on individuals and families with high incomes are now lower. What was the top marginal personal income tax r

Homework 5, Instructions For the following 10 questions, consider an eco...

Instructions For the following 10 questions, consider an economy which is initially in equilibrium without a tax, with P* of $90 and Q* of 10. Later, a tax is put on the market

Estimate the optimal level of provision, There are a lot of mosquitoes in ...

There are a lot of mosquitoes in the island of Liholiho. Only two people live in this island, Robinson Crusoe and Man Friday. Their respective demand curves for mosquito control ar

Relationship between number of hours worked and unemployment, Q. Relationsh...

Q. Relationship between number of hours worked and unemployment? In all models we presume a negative relationship between number of hours worked and unemployment. If number of

#title.homework help, 1) Why does the adoption of Keynesian economics come ...

1) Why does the adoption of Keynesian economics come out of the Great Depression? 1) Why does the adoption of Keynesian economics come out of the Great Depression? 2) What will ha

Real gdp growth rate of an economy, a.  State concisely, in your own words,...

a.  State concisely, in your own words, the essence i.of what GDP measures and ii.what GDP doesnot measure.  b.  Stocks and bonds issued by firms comprise the "Investment" co

Explain production as an income generating activity, Explain production as ...

Explain production as an income generating activity. What are the principal difference among government purchases of goods & service and transfer payments? Why are in

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