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WAGES, AGGREGATE SUPPLY DETERMINANT: One of several specific aggregate supply determinants assumed constant when the short-run aggregate supply curve is constructed, and that shifts the short-run aggregate supply curve when it changes. An increase in the wages causes a decrease (leftward shift) of the short-run aggregate supply curve. A decrease in the wages causes an increase (rightward shift) of the short-run aggregate supply curve. Other notable aggregate supply determinants include the technology, energy prices, and the capital stock. Wages are an example of a resource price aggregate supply determinant.
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Lesson 16: Aggregate Shocks | Unit 4: Complex Shifts
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Page: 14 of 21
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The case of an increase in the AD curve. Let's start at long-run equilibrium. All three curves, AD, LRAS, and SRAS, intersect at the same long-run equilibrium values, Po and Qf.- With a rightward shift of the AD curve, the aggregate market achieves short-run equilibrium at a higher price level and more real production.
- The labor market imbalance causes wages and production cost to rise. The SRAS shifts leftward. It stops shifting when it intersects the new AD and the original LRAS curves for a new long-run equilibrium. The price level is even higher and real production returns to full employment.
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RISK PREMIUM The difference between a guaranteed or certain income and a risky income that generate the same level of utility. Risk premium is the amount of income that a risk adverse person is willing to pay to avoid the risk. Alternatively, it is the amount of income that a risk loving person is willing to pay to engage in risk. For risk aversion, the risk premium is the amount a person would pay for insurance.
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The 22.6% decline in stock prices on October 19, 1987 was larger than the infamous 12.8% decline on October 29, 1929.
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"You have to find something that you love enough to be able to take risks, jump over the hurdles and break through the brick walls that are always going to be placed in front of you. If you don't have that kind of feeling for what it is you're doing, you'll stop at the first giant hurdle. " -- George Lucas
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LRTC
Long Run Total Cost
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