Long run aggregate supply

What does LRAS show?

Limit to production

Where does LRAS shift out?

Where there is an improvement in the quantity or quality of resources

In terms of LRAS, what would increased migration equal to?

more workers = more possible production

What is the definition of LRAS?

The maximum possible level of supply in the economy, where all resources are fully employed

What is an example of the LRAS factor ‘Technological advances’?

AI advances in production makes it faster to manufacture goods and services

What is an example of the LRAS factor ‘Changes in relative productivity’?

New working procedures speed up UK manufacturing

What is an example of the LRAS factor ‘Changes in education and skills’?

The new T levels (vocational qualifications) are a success

What is an example of the LRAS factor ‘Changes in government regulations’?

Corporation tax rebate: firms pay less of this tax if they buy more capital goods

What is an example of the LRAS factor ‘Demographic changes and migration’?

Boarder restrictions are relaxed allowing more people to enter the UK from abroad

What is an example of the LRAS factor ‘Competition policy’?

Government breaks up rear monopolies in key industries

What are the two interpretations of the shape of LRAS?

Neo Classical and Keynesian

Sometimes there can be a limit in a boom and what does this lead to?

an increase in cost and demand but no increase in quantity produced or the value of it

When LRAS is horizontal what does this mean in terms of elasticity?

Perfectly elastic

When LRAS becomes steeper what does this mean in terms of elasticity?

More inelastic

When LRAS is vertical what does this mean in terms of elasticity?

Perfectly inelastic

What does LRAS being perfectly elastic, what 4 things does that mean?

• Lots of spare capacity

• Lots of unemployment

• If there is an increase in demand there will be an increase in production

• If there is no increase in costs there will be no increase in price level

What does LRAS becoming more inelastic, what 2 things does that mean?

• shortages of resources

• When increase in demand, increase in production, increase in costs and increase in price level

What does LRAS being perfectly inelastic, what 2 things does that mean?

• All resources are folly employed

• If increase in demand, increase in costs, increase in price level but no increase in output