ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The long-run aggregate supply curve is vertical because factor prices will have adjusted. Factor prices increase if producing at a point beyond full employment output, shifting the short-run aggregate supply inwards so equilibrium occurs somewhere along full employment output.

Detailed explanation-2: -The LRAS is vertical at a value of real GDP that represents a point on the PPC. The LRAS represents a point on a country’s PPC, translated into the AD-AS model.

Detailed explanation-3: -The long-run aggregate supply curve is vertical because in the long run, an economy’s supply of goods and services depends on its supplies of capital, labor, and natural resources and on the available production technology used to turn these resources into goods and services.

Detailed explanation-4: -LRAS shifts only when the potential GDP increases or decreases. Figure 3. A Demand Shock. When AS shifts in response to a shift in AD, potential GDP (and LRAS) is unchanged.

Detailed explanation-5: -The curve become vertical after full employment level of output indicating the maximum amount of output which can be produced in the economy generating the respective national income.