I. SRAS: time too short for wages to adjust to the price level. The rational for SRAS is that workers may not be aware yet of changes in their real wages due to inflation and have adjusted their labor supply decisions and wage demands accordingly.
- Nominal Wages is the amount of money received per day, per hour, or per year.
- Real wages is adjusted for inflation
- Sticky Wages: where the nominal wage level is set according to an initial price level and it does not vary.
II. LRAS: time long enough for wages to adjust to the price level. In the long run, there is a flexible wage and price level. Both the wage and the price level offset each other. The same factors that move the PPG is the same that move the LRAS.
No comments:
Post a Comment