Aggregate Supply Curve (AS): It shows how price and the quantity supplied are related to each other. The curve is positively slopped which means that when prices rise, the quantity supplied also rises. The curve depends on the duration of time. Short Run Aggregate Supply (SRAS): It is a positively slopped curve in which supply increases when price rises. The reason for upward slopping is that the wages are sticky in the short run due to formal or informal contracts. At higher aggregate prices there is higher profit leading to high level of output. Inflation: When the price of any good increases continuously for an interval of time it is called inflation. It leads to decrease in the purchasing power . A controlled inflation is good for economy. Unemployment rate: It is defined as the rate of unemployed people in an economy. All those people who are willing to work at given wages but cannot find jobs are known as the unemployed. It is the ratio of unemployed to that of labor force in the economy. Okun’s Law: This law states that rate of unemployment and the output gap is inversely related to each other. When output gap increases by one percent unemployment rate decreases by half percent.

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Chapter 31, Problem 10P

To determine

Concept Introduction:

Aggregate Supply Curve (AS): It shows how price and the quantity supplied are related to each other. The curve is positively slopped which means that when prices rise, the quantity supplied also rises. The curve depends on the duration of time.

Short Run Aggregate Supply (SRAS): It is a positively slopped curve in which supply increases when price rises. The reason for upward slopping is that the wages are sticky in the short run due to formal or informal contracts. At higher aggregate prices there is higher profit leading to high level of output.

Inflation: When the price of any good increases continuously for an interval of time it is called inflation. It leads to decrease in the purchasing power. A controlled inflation is good for economy.

Unemployment rate: It is defined as the rate of unemployed people in an economy. All those people who are willing to work at given wages but cannot find jobs are known as the unemployed. It is the ratio of unemployed to that of labor force in the economy.

Okun’s Law: This law states that rate of unemployment and the output gap is inversely related to each other. When output gap increases by one percent unemployment rate decreases by half percent.

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