The Gap Effect, and the Expectation Effect

THE WONDERFUL WORLD OF INFLATION:

People talk about inflation a LOT, so its probably a good idea know what it is. If you've survived macroeconomics without knowing what inflation is up until this point, congratulations, you live a seriously charmed life.

For the rest of us, lets reiterate:

Inflation is any rise in the general price level (P)

Inflation can be temporary/transitory (the price level increases to a new equilibrium price level, where it stays put for a while) or it can be sustained/persistant (the price level rises continuously over time)

read more...

Macroeconomic Timespans

Macroeconomic Time Spans: Changes can have different effects over the long run than they do in the short run! This is just going to be a brief comparison exercise between the long run and the short run.

------------->
<------------- ------------->
<-------------------------->
<-------------------------->
<-------------------------->
<------------- ------------->
<------------- ------------->
<------------- ------------->
<-------------------------->
<-------------------------->
<------------- ------------->
<-------------

read more...

MACROECONOMIC EQUILIBRIUM: Putting it all Together

So, we have the aggregate supply curve and we have the aggregate demand curve.

AD measures levels of production which won't change over time as a function of price

AS measures levels of production which suppliers will actually produce at as a function of price.

SO... what happens when you put both of them together?

read more...