3.4: Long Run Aggregate Supply (LRAS)

Question 1

Long Run Aggregate Supply

Answer 1

Wages and resource prices are flexible and will change when price level changes

Question 2

What doesn’t change in the long run?

Answer 2

GDP, when price levels increase GDP doesn’t.

Question 3

What is an assumption made about the economy in the long run?

Answer 3

The economy will be producing at full employment. (Full employment: Max. sustainable capacity)

Question 4

Shifters of Long Run Aggregate Supply

Answer 4

A permanent change in the production possibilities of the economy can shift the LRAS

Shifters of LRAS are the of the PPC

1. Change in resource quantity and quality
2. Change in technology