4.2.2.6 - Determinants of long-run aggregate supply Content

What are assumptions made about the classical LRAS curve?

Output is fixed at each level. All FOP's are fully employed in the long run

What influence LRAS

Changes in the quality and quantity of FOP's

What factors influence LRAS?

- Technological Advances
- Changes in relative Productivity
- Changes in Education and Skills
- Changes in Regulation
- Demographic changes / migration
- Competition policy

How can a more competitive market influence LRAS?

Encourages firms to be more efficient and more productive, so they are not competed out of business.

How can demographic changes and migration influence LRAS?

If there is net inward migration and the majority of the population are of working age then the size of the labour force will increase significantly, which means the economy can increase its output.

How can change in government regulations influence LRAS?

May limit how productive and efficient a firm can be if is excessive, can be referred to as red tape