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Derive the dynamic aggregate supply curve equation.

Derive the dynamic aggregate supply curve equation.

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Answer #1

In layman's term

The Dynamic Aggrigate Supply curve shows a relation between output & inflation that comes from the Phillips Curve(PC) and Adaptive Expectation.

t = t-1 + (Yt -t-1) + Vt

Dynamic Aggrigate Supply slopes upward: because high levels of output are associated with high level of inflation.

Dynamic Aggrigate Supply shifts in response to changes in the natural level of output, preceding inflation, and supply shocks

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