ECONOMICS
AGGREGATE SUPPLY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Yes, I understand this from the notes
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No, I don’t understand this from the notes
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No, I don’t understand this, as I have not read the notes
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None of the above
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Detailed explanation-1: -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-2: -The LRAS is vertical because, in the long-run, the potential output an economy can produce isn’t related to the price level. There are only two things that matter for potential output: 1) the quantity and the quality of a country’s resources, and 2) how it can combine those resources to produce aggregate output.
Detailed explanation-3: -The Keynesian LRAS Keynesians represent the long-run aggregate supply curve as perfectly elastic at low output, then upward sloping over a range of output and finally perfectly inelastic at the full employment level of output.
Detailed explanation-4: -Third Stage: Long Run Aggregate Supply Technology has the effect of increasing levels of production while holding labor and capital constant. This is because increased technology makes the production process more efficient. As a result, the LRAS curve is almost a vertical line.