AD-AS curve

SRAS

short run aggregate supply curve

Misperception theory

people believe changes in price are on the micro-level, not aggregate. Thus the law of supply leads them to increase production even if price levels are not uniquely rising for their product

Sticky wages

things like contracts, long term agreements take time to update with rising price levels, or might not be flexible at all and cannot respond to inflation. The curve slopes up because at least one price is inflexible

menu costs

costs of things like reprinting a new menu to update all prices which keep firms from changing prices

What shifts the SRAS

shocks = events that make production costs different at every possible price level

What shocks shift the SRAS

SPITE = subsidies for businesses, productivity, input prices, taxes on business, expectations about inflation

Changes in price level

Cause movement along the SRAS curve

What causes shift to the left

anything that makes production more expensive or difficult, or leads firms to believe they will be more expensive or difficult

What causes a shift to the right

Any changes that make production easier or cheaper or leads firms to believe they are

short term relationship between inflation and unemployment

in the short term, firms can afford to hire more employees because wages are sticky and will remain for some time at the lower level and thus unemployment rate goes down