Long Run Aggregate Supply

LRAS

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

Factors of Production

in the long run, all factors of production are variable

Determinants of LRAS

• state of technology

• factor mobility

• productivity

• enterprise incentives

• institutional structure of economy

• attitudes

Factor mobility

• OCCUPATIONAL MOBILITY (education: student loans for all)

• GEOGRAPHICAL MOBILITY (transport: railways and investment in infrastructure such as HS railways)

Institutional structure of economy

• Increased competition

• Increased banking (more loans etc.)

Flexible working

• HYBRID WORKING (working from home part time) - increases participation

LAND

• increased land efficiency

• permits to use new land

LABOUR

• education/training/retraining

• increase minimum wage to encourage participation

• income tax lower to encourage participation

• cutting benefits to encourage participation

• childcare subsidies to allow employment (30hours free/ week)

CAPITAL

• research and development grants

• tax breaks on investment in capital goods

• subsidies on capital (AI/Renewable energy)

• technological advancement

ENTERPRISE

• grants for energy store

• grants for renewable energy

• low corporation tax for small businesses (19% for profit under £250,000)

Economic incentives

• 13 investment zones (10yrs funding)

• childcare subsidies

• renewable subsidies

• tax breaks on research and development

• investment in research and development

AS CURVE

LRAS CURVE