New classical analysis of
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The document discusses several concepts from New Classical economics including: 1) How an underprediction of inflation could cause an increase in employment if it leads to a higher real wage. 2) How a rise in aggregate demand could cause a rise in national output if expectations are wrong and the short-run aggregate supply curve shifts out. 3) How a rise in aggregate demand could cause a fall in national output if expectations are correct and the long-run aggregate supply curve is vertical. 4) How the short-run Phillips curve varies depending on whether inflation expectations are lower than, equal to, or higher than actual inflation.
New classical analysis of
- 1. New Classical Analysis of Output and Employment
- 2. The effects of an increase in aggregate demand SRAS1 (expected price level = P1) Price level (a) Adaptive P2 b expectations P1 a AD2 AD1 O Q1 Q2 National output
- 3. The effects of an increase in aggregate demand SRAS 2 (expected price level = P3 ) SRAS1 (expected price level = P1) c Price level P3 (a) Adaptive P2 b expectations P1 a AD2 AD1 O Q1 Q2 National output
- 4. The effects of an increase in aggregate demand SRAS LRAS 2 (expected price level = P3 ) SRAS1 (expected price level = P1) c Price level P3 (a) Adaptive P2 b expectations P1 a AD2 AD1 O Qn Q2 National output
- 5. The effects of an increase in aggregate demand SRAS1 (expected price level = P1) Price level (b) Rational expectations P1 a AD2 AD1 O Q1 National output
- 6. The effects of an increase in aggregate demand SRAS 2 (expected price level = P3 ) SRAS1 (expected price level = P1) c Price level P3 (b) Rational expectations P1 a AD2 AD1 O Q1 National output
- 7. The effects of an increase in aggregate demand SRAS LRAS = SRAS actual 2 (expected price level = P3 ) SRAS1 (expected price level = P1) c Price level P3 (b) Rational expectations P1 a AD2 AD1 O Qn National output
- 8. When expectations New classical analysis are wrong: how an under-prediction of inflation could cause an increase in employment
- 9. Effects in the labour market of an underprediction of inflation ASL1 ((W / P ) = W / P ) e ASL2 ((W / P )e > W / P ) Real wage rate (W / P) Underprediction of inflation ADL O Q1 Q2 Number of workers
- 10. New classical analysis When expectations are wrong: how a rise in AD could cause an increase in national output
- 11. How a rise in aggregate demand could cause a rise in national output LRAS SRAS2 (expected price level = P2 ) SRAS1 b Price level (expected price level = P1) P3 P2 Actual rise in aggregate demand P1 a AD3 AD2 AD1 O Qn Q3 National output
- 12. New classical analysis When expectations are wrong: how a rise in AD could cause a fall in national output
- 13. How a rise in aggregate demand could cause a fall in national output SRAS2 LRAS (expected price level = P2 ) SRAS1 (expected price level = P1) P2 Price level c P3 Actual rise in aggregate demand P1 a AD2 AD3 AD1 O Q3 Qn National output
- 14. New classical analysis How the short-run Phillips curve varies with the accuracy of inflationary expectations
- 15. New classical version of short-run Phillips curves . . . . . . e e e P <P P =P P >P Inflation (%) O Unemployment (%)