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

Solve equilibrium price and the equilibrium quantity, Suppose that a widget...

Suppose that a widget market is described by the following supply and demand equations. Supply: Q = 3 P Demand: Q =400 - P a. Solve for the equilibrium price and the

Determine the exchange rate, Determine the exchange rate When a currenc...

Determine the exchange rate When a currency is freely floating, the central bank doesn't have to set monetary policy to alter the external value of the currency unless instruct

After your last deposit withdraw immediately, You make a monthly deposit of...

You make a monthly deposit of $1,000 into a saving account for the next 10 years. How much can you withdraw immediately after your last deposit if your saving account pays 6% per y

Described as a market in equilibrium, Camping at Wilson's Promontory, a nat...

Camping at Wilson's Promontory, a national park in Victoria, isn't free, but for many years now not everyone who wants to camp at Wilson's Promontory during the Christmas holidays

Social cohesion and increase the scope, "International bodies such as the a...

"International bodies such as the aced argue that more unequal income and wealth distribution erode social cohesion and increase the scope for internal conflict."

Consumer safety and product information, Can you think of examples where th...

Can you think of examples where the government does not intervene enough when it comes to consumer safety and product information? Examples where too much intervention is the case

Product of demand curve, The demand curve for product X is given by QXd = 3...

The demand curve for product X is given by QXd = 340 - 4PX.\ a) How much consumer surplus do consumers receive when Px = $45? b) How much consumer surplus do consumers receiv

How much money can banks create, Q. How much money can banks create? Do...

Q. How much money can banks create? Does that mean that banks can create an unlimited amount of money? No the answer is no - it would require them to lend an unlimited amount o

Theories of international trade, comparison between neoclassical factor end...

comparison between neoclassical factor endowment theory of international trade and classical labor cost theory of comparative advantage

Determining the lm curve, This problem revolves around determining the LM c...

This problem revolves around determining the LM curve, as we did earlier in the term such that money demand (M D ) equals money supply (M S ), however in this instance under differ

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