ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The long-run aggregate supply (LRAS) curve is vertical at the full-employment level of output. This means that LRAS doesn’t change as the price level changes.

Detailed explanation-2: -Hence, the overall result will increase potential output (rightward shift in LRAS). This is because an increase in aggregate demand and labor supply allows supply and demand to increase in tandem, moving to a higher equilibrium.

Detailed explanation-3: -The primary production factors that cause the changes in the LRAS curve include labor productivity levels, workforce size, capital size, and education levels. When the economy experiences an increase in growth and investments, the long-run aggregate supply curve also shifts to the right, and vice versa.

Detailed explanation-4: -The LRAS curve is also vertical at the full-employment level of output because this is the amount that would be produced once prices are fully able to adjust. In the short-run, some prices are sticky. This means that producers might respond to changes in the price level by changing their output.