EXTENDING THE ANALYSIS OF AGGREGATE SUPPLY Pertemuan 12 Matakuliah : J0594-Teori Ekonomi Tahun : 2009 EXTENDING THE ANALYSIS OF AGGREGATE SUPPLY Pertemuan 12

From Short Run To Long Run Short-Run Aggregate Supply Long-Run Aggregate Supply Graphically Bina Nusantara University

From Short Run To Long Run Aggregate Supply Long-Run Aggregate Supply AS1 ASLR AS2 a1 AS1 a2 b1 a2 AS3 P2 P2 a3 Price Level a1 Price Level P1 P1 a3 P3 P3 c1 Q3 Qf Q2 Qf Real Domestic Output Real Domestic Output Bina Nusantara University

From Short Run To Long Run Equilibrium in the Extended AD-AS Model ASLR AS1 Price Level P1 a AD1 Qf Bina Nusantara University Real Domestic Output

From Short Run To Long Run Demand-Pull Inflation in the Extended AD-AS Model AS2 ASLR AS1 P3 b P2 c Price Level P1 a AD2 AD1 Qf Bina Nusantara University Real Domestic Output

From Short Run To Long Run Cost-Push Inflation in the Extended AD-AS Model If Government Counters Recession With Spending… If Government Ignores Recession… AS2 ASLR AS1 P3 c P2 b Price Level P1 a AD2 AD1 Bina Nusantara University Qf Real Domestic Output

From Short Run To Long Run Recession in the Extended AD-AS Model ASLR AS1 AS2 P1 a P2 b Price Level P3 c AD1 AD2 Bina Nusantara University Q1 Qf Real Domestic Output

The Inflation-Unemployment Relationship The Short-Run Effect of Changes on Real Output and the Price Level AS P3 Price Level P2 AD3 P1 AD2 P0 AD1 AD0 Bina Nusantara University Q0 Q1 Q2 Q3 Real Domestic Output

The Inflation-Unemployment Relationship The Phillips Curve Inverse Relationship Inflation and Unemployment Empirical Data Data for the 1960s Concept Annual Rate of Inflation (Percent) Unemployment Rate (Percent) Unemployment Rate (Percent) Annual Rate of Inflation (Percent) 7 7 69 6 6 5 5 68 4 4 66 67 3 3 65 2 2 63 62 61 1 1 64 1 2 3 4 5 6 7 1 2 3 4 5 6 7 Bina Nusantara University

The Inflation-Unemployment Relationship Adverse Supply Shocks and the Phillips Curve Stagflation Adverse Aggregate Supply Shocks OPEC Oil Price Shock Stagflation’s Demise Bina Nusantara University

The Inflation-Unemployment Relationship Long-Run Phillips Curve Short-Run Phillips Curve Long-Run Vertical Phillips Curve Disinflation Bina Nusantara University

The Inflation-Unemployment Relationship The Long-Run Vertical Phillips Curve PCLR 3 6 9 12 15 PC3 b3 PC2 a3 Annual Rate of Inflation (Percent) b2 PC1 a2 c3 b1 a1 c2 Bina Nusantara University 3 4 5 6 Unemployment Rate (Percent)

Taxation and Aggregate Supply Supply-Side Economics Tax Incentives to Work Tax Incentives to Save and Invest The Laffer Curve 100 n Laffer Curve Tax Rate (Percent) m m Maximum Tax Revenue l Tax Revenue (Dollars) Bina Nusantara University

Taxation and Aggregate Supply Criticisms of The Laffer Curve Taxes, Incentives, and Time Inflation and Higher Real Interest Rates Position on the Curve Rebuttal and Evaluation Bina Nusantara University