March 18, 2018 

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ARC ELASTICITY: The average elasticity for discrete changes in two variables, A and B. The distinguishing characteristic of arc elasticity is that percentage changes are calculated based on the average of the initial and ending values of each variable, rather than only initial values. Arc elasticity is generally calculated using the midpoint formula. Arc elasticity should be compared with point elasticity. For infinitesimally small changes in variables A and B, arc elasticity is the same as point elasticity.

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Lesson 16: Aggregate Shocks | Unit 4: Complex Shifts Page: 17 of 21

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

The case of an increase in the SRAS curve. Let's start at long-run equilibrium, Po and Qf.
  • With a rightward shift of the SRAS curve, the aggregate market achieves short-run equilibrium at a lower price level and more real production.
  • The labor market imbalance causes wages and production cost to rise. The SRAS shifts leftward, returning to its original position. The price level and real production return to full employment levels.
From long run to long run, nothing changed. But before the long-run adjustment, we have more production at lower prices.

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An equation that summarizes the four aggregate expenditures on gross domestic product by the four macroeconomic sectors. In the study of Keynesian economics, this equation is commonly used to summarize the demand side of the macroeconomy. The aggregate expenditures equation actually comes in three different versions depending on how many of the four sectors and their expenditures are included.

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