Unit 3.3 Short-run aggregate supply

short-run aggregate supply (SRAS)

a graphical model that shows the positive relationship between the aggregate price level and amount of aggregate output supplied in an economy

short-run

in macroeconomics, a period in which the price of at least one factor of production cannot change; for example, if wages are stuck at a certain level, we would still be in the short-run.

sticky prices or wages

(also called nominal price rigidity) the idea that some prices and wages are not fully flexible and cannot completely respond to changes such as inflation or deflation

menu costs

the idea that firms might not change their prices when there is a change in the price level because it is costly to do so; menu costs have been proposed as one of the reasons that prices are “sticky” in an economy.

determinants of SRAS

anything that will shift the SRAS curve, also called an aggregate supply shock; if the prices of any of the factors of production change, or firms expect those prices to change, then the SRAS curve will shift.

expectations

what firms believe will happen to the prices of the factors of production