Case.faire. Aggregate Supply

7/22/2019 Case.faire. Aggregate Supply

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2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair

CHA

PT

E

R

13

Prepared by: Fernando Quijano

and Yvonn Quijano

Aggregate Demand, Aggregate

Supply, and Inflation

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The Aggregate Supply Curve

Aggregate supply is the total supply of all goodsand services in the economy.....AS :

keseluruhan penawaran barang dan jasa dalam

perekonomian

The aggregate supp ly(AS)curveis a graph

that shows the relationship between the

aggregate quantity of output supplied by all firms

in an economy and the overall price level.kurvaAS : hubungan antara jumlah barang yang

ditawarkan oleh semua perusahaan dan tingkat

harga

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The Aggregate Supply Curve:

A Warning

The aggregate supply curve is not a marketsupply curveand it is not the simple sum of all

the individual supplycurves in the

economybukan kurva supply pasar dan bukanpenjumlahan kurva supply individual

One reasonis that firms do not simply respond to

market-determined prices, but they actually set

prices. Price-setting firms do not have individualsupply curves because these firms are choosing both

output and price at the same time. We can add

something that does not exist!...perusahaan memilih

harga dan output secara bersamaan

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A Warning

Another reasonis that when we draw a firms supplycurve, we assume that input prices are constant. If the

overall price level is rising, there will be an increase in

at least some input prices..diasumsikan P input

konstan The outputs of some firms are the inputs of other firms

output beberapa perusahaan merupakan input perusahaan

lain

As wage rates and other input prices rise, the firms individual

supply curves are shifting, so we can not sum them to get an

aggregate supply curve.upah dan harga input lain naik,

supply perusahaan individual bergeser, sehingga tidak dapat

dijumlahkan untuk mendapatkan kurva AS

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A Warning

What does exist is a price/output response

curvea curve that traces out the price

decisions and output decisions of all the

markets and firms in the economy under agiven set of circumstances.kurva AS adalahkurva respon harga/output : kurva keputusan harga

dan output semua pasar dan perusahaan pada

kondisi tertentu

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Aggregate Supply in the Short Run

In the short run, theaggregate supply curve (theprice/output responsecurve) has a positive slope

At low levels of aggregateoutput, the curve is fairlyflat.

As the economy

approaches capacity, thecurve becomes nearlyvertical.

At capacity(FE), the curveis vertical.

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7/25 2002 Prentice Hall Business Publishing Principles of Economics, 6/e Karl Case, Ray Fair

Aggregate Supply in the Short Run

Macroeconomists focuson whether or not

the economy as a whole is operating at full

capacity.fokus : perekonomian beroperasi pada

FE

Even if firms are not holding excess labor

and capital, the economy may be operating

below its capacity if there is cyclicalunemploymentmeskipun perusahaan tidakkelebihan labor dan kapital perekonomian

beroperasi di bawah FE bila terjadi pengangguran

siklus

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Output Levels and Price Responses

An increase in aggregatedemand when the economyis operating at low levels ofoutput is likely to result inan increase in output with

little or no increase in theoverall price level..pada Yyang redah, AD Y (Yoke Y1) dan P sedikit (Poke P1)

As the economy approaches maximum capacity, firms respond

to further increases in demand only by raising

prices.perekonomian mendekati FE : perusahaan merespon

kenaikan AD dg menaikkan P (Y2 ke Y3 : P2 ke P3)

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The Response of Input Prices to

Changes in the Overall Price Level

There must be a lag between changes in

input prices and changes in output prices,

otherwise the aggregate supply

(price/output response) curve would beverticalterdapat lag antara

perubahan P input dan PY (P output)

AS (kurva respon P/Y) menjadi vertikal

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The Response of Input Prices to

Changes in the Overall Price Level

Wage rates may increase at exactly the

same rate as the overall price level if the

price-level increase is fully anticipated.

Most input prices, however, tend to lagincreases in output prices.upah mungkinnaik dengan tingkat yang sama dengan kenaikan

P apabila kenaikan P ini diantisipasi. Sebagian

besar P input cenderung terjadi lag dalamkenaikan P

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Shifts of the Short-Run

Aggregate Supply Curve

A leftwardshift of theAScurve could becaused by cost shocks(cost ).

A decrease in costs,

economic growth, or public

policy, can cause a rightward

shift of theAScurve.

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Shifts of the Short-Run

Aggregate Supply Curve

deregulation

Bad weather, natural

disasters, destruction

from wars

Good weather

Public policyPublic policy

waste and inefficiency supply-side policies

over-regulation tax cuts

Capital deterioration more capital

more labor

higher input prices lower input prices

higher wage rates lower wage rates

Factors That Shift the Aggregate Supply CurveShifts to the Left

Decreases in Aggregate Supply

Shifts to the RightIncreases in Aggregate Supply

technological change

StagnationEconomic growth

Higher costsLower costs

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The Equilibrium Price Level

The equ i l ibr ium pr ice levelis the point at

which the aggregate demand and

aggregate supply curves intersect.

P0and Y0correspond to

equilibrium in the goods

market and the money

marketand a set of

price/output decisionson the part of all the

firms in the economy.

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The Long-Run Aggregate Supply Curve

Costs lag behind price-level changes in theshort run, resulting in an upward-slopingAS

curve, but ultimately move with the overall

price level.

If costs and the price

level move in tandem

in the long run, the

AScurve is vertical.

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Y0represents the level of outputthat can besustainedin the long run without inflation. It is

also called po tent ial ou tput.

Output can be pushedabove potential GDPby

higher aggregate

demand. The aggregate

price level also rises..Y ( Y1>Yo) dg menaikkan

AD (ADo ke AD1)P (Po

ke P1)

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When output is pushed above potential, there isupward pressure on costs. Rising costs push theshort-runAScurve to the leftY > YFE (Y1>YoCost AS (Ke atas)

If costs ultimately

increase by the same

percentage as the price

level, the quantity

supplied will end up back

at Y0.bila %kenaikan Cost = %

kenaikan PY akan

kembali ke YFE (Y1 ke

Yo) yst



AD,AS, and

Monetary and Fiscal Policy

Expansionary policy works wellwhen the economy is on the

flat portion of theAScurve,

causing little change in P

relative to the output

increasefiskal ekspansif (G,T) akan optimal (Ybanyak)

bila AS landaiP sedikit

(Po ke P1) Y banyak (Yo ke

Y1)

ADcan shift to the rightfor a number of reasons,including an increase in the money supply, a taxcut, or an increase in government spending.AD

karena M , T , G

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AD,AS, and

Monetary and Fiscal Policy

When the economy is

operating near full

capacity, an increasein

ADwill result in an

increase in the price levelwith little increase in

outputperekonomian

mendekati FE : AD P

banyak, Y sedikit

On the steep portion of theAScurve,expansionary policy does not work well. The

multiplier is close to zero.pada AS yang curam :

kebijakan ekspansif tidak bekerja dg baik

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Long-Run Aggregate Supply

and Policy Effects

If theAScurve is verticalin the long run, neither monetarypolicy norfiscal policyhas any effecton aggregate

output.. pada AS vertikal (jangka panjang) : fiskal dan

moneter tidak berdampak pada AD

In the long run, the

multiplier effect of a change

in government spending or

taxes on aggregate output

is zero..dalam jangkapanjang : efek multiplierG

atau TY tetap dan P

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Causes of Inflation

In flat ionis an increase in the overall pricelevelkenaikan harga semua barang

Sustained inf lat ionoccurs when the overall

price level continues to rise over some fairlylong period of timeharga semua barang

meningkat terus dalam jangka panjang

Sustained inflation is essentially a monetaryphenomenon. For the price level to continue to

rise period after period, it must be

accommodated by an expanded money supply.

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Causes of Inflation

Demand-pul l inf lat ionisinflation initiated by anincrease in aggregatedemand.

Cost-push, or supp ly -

side, inf lat ionis inflation

caused by an increase in

costs.

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Cost-Push, or Supply-Side Inflation

Cost shocks are bad newsfor policy makers. The

only way to counter the

output lossis by having the

price level increaseevenmore than it would without

the policy action.

Cost-push inflationis one possible cause ofstagf lat iona situation in which output is falling

at the same time that prices are risingY , P

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Expectations and Inflation

If every firm expects every other firm to raiseprices by 10%, every firm will raise prices by

about 10%. This is how expectations can get

built into the system.

In terms of theAD/AS

diagram, an increase in

inflationary expectations

shifts theAScurve tothe left..e AS

kekiri/kebawah

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Money and Inflation

Hyper inf lat ionis a period of very rapidincreases in the price level.

An increase in Gwith the

money supply constantshifts theADcurve from

AD0toAD1. This leads to

an increase in the interest

rate and crowding outofplanned investment

G M tetapAD

(kekanan) karena

crowdingout : r I yst


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2002 P ti H ll B i P bli hi P i i l f E i 6/ K l C R F i

Money and Inflation

Hyper inf lat ionis a period of very rapidincreases in the price level.

If the Fed tries to prevent

crowding out by keeping theinterest rate unchanged, it

will increase the money

supply and theADcurve will

shift farther and farther to theright. The result is a

sustained inflation,

perhaps hyperinflation.

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