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 LRAS curve represents a point on an economy’s production possibilities curve (PPC). Remember that the PPC represents the maximum output that can be produced given scarce resources. The economy grows if the PPC shifts outward because of more/better resources or technological advances.
Detailed explanation-2: -The long-run aggregate supply (LRAS) curve relates the level of output produced by firms to the price level in the long run. In Panel (b) of Figure 22.5 “Natural Employment and Long-Run Aggregate Supply”, the long-run aggregate supply curve is a vertical line at the economy’s potential level of output.
Detailed explanation-3: -The LRAS curve corresponds to the production possibilities curve (PPC) because they both represent maximum sustainable capacity. Maximum sustainable capacity is the total output an economy will produce over a set period of time if all resources are fully employed.
Detailed explanation-4: -Long-Run Aggregate Supply (LRAS)-Key takeaways The LRAS curve is in line with the production possibilities curve (PPC), representing the maximum sustainable capacity. Maximum sustainable capacity refers to the total amount of production that can occur, given that all resources are fully employed.