22 February 2016 [SRAS (Unit 3)]

Note on SRAS

• Nominal Wage: The amount of money receive be worked per unit of home.
• by the hour 
• by the day 
• Real Wage: It is the amount of goods and service a worker an purchase with their nominal wage.
• It is the purchase of your nominal wage
• Sticky Wage: Nominal wage level that is set according to an initial price level and does not very dew to labor contract and other restriction.

                                 

                                       

• Classical Range (inflation)
• Price: Flexible 
• Wages: Flexible 
• Employment level: Fixed
• Implication: Output is independent of changes in the price level.
• Intermediate Range (Upward sloping)
•  Price: Flexible 
• Wages: Fixed
• Employment level: Flexible
• Implication: output depend upper changes in price and employment level.
• Keynesian Range (Recession)
• Price: Fixed 
• Wages: Fixed 
• Employment level: flexible
• Implication: output depend upon change in the unemployment level.

Investment Demand

what is investment money spent of expenditures on:

• new plant (factories)
•  capital equipment (machinery)
• technology (hardware software)
• new homes

 Inventories (goods sold by produces Expected Rate of Return)

How does business determine the benefits?

- how does business count the cost- Interest Cost

How does business determine the amount of investment my undertake

- compare expected rate of return to interest cost

if expected return> interest costif expected return< interest cost then do not interest.Real (r%) v. Nominal (I%)

what's the difference?

-Nominal is the observable rate of interest. real subtract out inflation (pie%) and is only known ex post factorhow do you complete the real interest rate (r%)r%= I%- pie%what then determine the cost of an investment decision?- the real interest rate (r%)