A.S ANALYSIS

In macroeconomics, this is the period in which wages (and other input prices) remain fixed as price level increases or decreases.

Long Run Aggregate Supply
-Period of time in which wages have become fully responsive to changes in price level.

Effects over Short-Run
-In the short run, price level changes allow for companies to exceed normal outputs and hire more workers because profits are increasing while wages remain constant.
-In the long run, wages will adjust to the price level and previous output levels will adjust accordingly.

Equilibrium in the Extended Model
-The long run AS Curve is represented with a vertical line at full employment level of real GDP.

Demand Pull Inflation
-Demand pull- prices increases based on an increase in aggregate demand.
-In the short run, demand pull will drive up prices, and increase production.
-In the long run, increases in aggregate demand will eventually return to previous levels.

Cost push & the Extended Model
-Cost push inflation arises from factors that will increase per unit costs such as increases in the price of a key resource.

Dilemma for the Government
-In an effort to fight cost-push, the government can react.
-Action such as spending by the government could begin an inflationary spiral.
-No action however could lead to a recession by keeping production and employment levels declining.