Unit 5

Short run AS- Time too short for wages adjust to the price level

Nominal wages-The amount of money revived per hour,per day,per week.

Real wage- adjusted for inflation,taxes.


Long run as-time long enough for wages to adjust to the price level.

• Key assumptions
• wages in price-flexible
• changes in wages and price offset each other
• LRAS is represented by a verticle line

		PL	WL	Employment Level	Implications
Horizonatal orKeynesianRange	1	FIXED	FIXED	FLEXIBLE	Output depends upon changes in employment
IntermediateRange	2	FLEXIBLE	FIXED	FLEXIBLE	Output depends on changes in PL and employment
Vertical or Classical Range	3	FLEXIBLE	FIXED	FIXED	Output depends on changes in PL