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Understanding Long-Run Aggregate Supply and Demand: Economic Growth and Inflation Dynamics

This chapter focuses on the transition from short-run to long-run aggregate supply (AS) and demand (AD) frameworks. It explores long-run equilibrium in the AD-AS model, the dynamics of economic growth and persistent inflation, and the relationship between inflation and unemployment, including the Phillips curve. Key topics include taxation's impact on AS, demand-pull and cost-push inflation, and the nuances of recession within the long-run model. The chapter also addresses the Laffer curve and presents critical assessments of these economic concepts through relevant graphs and shifts in AS.

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Understanding Long-Run Aggregate Supply and Demand: Economic Growth and Inflation Dynamics

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  1. Long-Run Aggregate Supply andAggregate Demand Chapter 11

  2. Outline • From Short Run to Long Run • Long Run Equilibrium in the AD-AS Model • Economic Growth and On-Going Inflation • The Inflation-Unemployment Relationship • Taxation and AS

  3. From Short Run to Long Run • SRAS • LRAS

  4. LR Equilibrium in the AD-AS Model • Demand-pull inflation in the LR AD-AS model • Cost-push inflation in the LR AD-AS model • Recession in the LR AD-AS model

  5. Economic Growth and On-Going Inflation • Graphs

  6. The Inflation-Unemployment Relationship • SR trade-off: the Phillips curve • AS shocks and shifts of the Phillips curve • No LR inflation-unemployment trade-off

  7. Taxation and AS • The Laffer curve • Criticisms, rebuttal, and assessment

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