ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -a curve that shows the relationship between price level and real GDP that would be supplied if all prices, including nominal wages, were fully flexible; price can change along the LRAS, but output cannot because that output reflects the full employment output.

Detailed explanation-2: -The long-run aggregate supply is an economy’s production level (RGDP) when all available resources are used efficiently. It equals the highest level of production an economy can sustain.

Detailed explanation-3: -Aggregate supply function is nothing but a function where the productive is maximum. It is represented by a vertical straight line on the graph. Hence, at full employment level, the aggregate supply function will be a vertical straight line.

Detailed explanation-4: -The long-run aggregate supply curve is vertical when a country is at full employment. The long-run aggregate supply curve is vertical because, in the long run, resource prices adjust to changes at the price level, which leaves no incentive for firms to change their output.

Detailed explanation-5: -Classically, full employment output is also called potential output. This makes sense given that when an economy is in full employment output it is matching its potential. Economic growth is a long-term increase in a country’s ability to produce goods and services.