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EQUATION OF EXCHANGE: An equation that specifies the relation between the money supply, the velocity of money, the price level, and real production. The equation is stated as M*V = P*Q, where M is the money supply, V is the velocity, P is the price level, and Q is real production. This equation is a key component of the quantity theory of money, which offers an explanation between the money supply and inflation.

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Lesson 16: Aggregate Shocks | Unit 4: Complex Shifts Page: 16 of 21

Topic: SRAS <=PAGE BACK | PAGE NEXT=>

Shifts of the SRAS curve that move the aggregate market away of the long-run equilibrium also trigger the self-correcting mechanism that moves it back.
  • The initial shift of the SRAS curve is caused by any of the ceteris paribus determinants.
  • The self-correcting shift of the SRAS curve is caused by wage changes triggered by an imbalance in the labor market.

Once again, we have two alternatives:

  • Short run aggregate supply increases.
  • Short run aggregate supply decreases.

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AVERAGE FIXED COST

Total fixed cost per unit of output, found by dividing total fixed cost by the quantity of output. When compared with price (per unit revenue), average fixed cost (AFC) indicates whether or not a profit-maximizing firm should shutdown production in the short run. Average fixed cost is one of three average cost concepts important to short-run production analysis. The other two are average total cost and average variable cost. A related concept is marginal cost.

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BROWN PRAGMATOX
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Today, you are likely to spend a great deal of time looking for the new strip mall out on the highway looking to buy either a package of blank rewritable CDs or yellow cotton balls. Be on the lookout for broken fingernail clippers.
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