3.4: Long-Run Aggregate Supply

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Macroeconomics

Supply & Demand

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Short run vs long run

Short run- wages and resource prices are sticky and will not change immediately when price levels change

Long run- wages and resource prices are flexible and will change when price levels change

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Long run Aggregate Supply Curve

  • Price level y axis

  • Real GDP x axis

  • Straight vertical line

    • price level increase but real GDP does not

  • Assume we are at full employment

    • 4-6% unemployment

<ul><li><p>Price level y axis</p></li><li><p>Real GDP x axis</p></li><li><p>Straight vertical line</p><ul><li><p>price level increase but real GDP does not</p></li></ul></li><li><p>Assume we are at full employment</p><ul><li><p>4-6% unemployment</p></li></ul></li></ul>
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Shifters in LRAS (general)

A permanent change in the PPC (production possibilities curve)

  • Meaning they share the same shifters and move the same way

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Shifters in LRAS (specific)

  • Change in resource quantity and quality

  • Change in technology

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