Real Output, The Price Level And Employment
Economics notes
Real Output, The Price Level And Employment
➡️ Supply side policies are designed to increase the productive capacity of an economy, such as through tax cuts, deregulation, and increased investment in infrastructure. These policies can lead to an increase in aggregate demand (AD) and aggregate supply (AS), resulting in an increase in the equilibrium national income.
➡️ Supply side policies can also lead to an increase in the price level, as the increased demand for goods and services leads to an increase in prices. This can lead to an increase in the level of output, as firms are able to produce more goods and services at higher prices.
➡️ Finally, supply side policies can lead to an increase in the level of employment, as firms are able to hire more workers to meet the increased demand for goods and services. This can lead to an increase in the level of output, as firms are able to produce more goods and services with the additional labor.
How does an increase in real output affect the price level and employment?
An increase in real output typically leads to an increase in employment and a decrease in the price level. This is because an increase in real output increases the supply of goods and services, which in turn leads to a decrease in prices and an increase in demand for labor.
How does a decrease in the price level affect real output, employment, and inflation?
A decrease in the price level typically leads to an increase in real output, employment, and inflation. This is because a decrease in the price level increases the purchasing power of consumers, which in turn leads to an increase in demand for goods and services, resulting in an increase in real output and employment. Additionally, the increase in demand for goods and services can lead to an increase in inflation.
How does an increase in employment affect real output, the price level, and inflation?
An increase in employment typically leads to an increase in real output and inflation, and a decrease in the price level. This is because an increase in employment increases the demand for goods and services, which in turn leads to an increase in real output and inflation. Additionally, the increase in demand for goods and services can lead to a decrease in the price level.