Download The long-run aggregate supply curve is perfectly vertical

The long-run aggregate supply curve is perfectly vertical; changes in
aggregate demand only cause a temporary change in total output.
LEARNING OBJECTIVES [ edit ]
Evaluate the role of technological changes in changes in the aggregate supply curve
Assess the role of labor in the shape and movement of the long run aggregate supply curve
Examine the reasons for, and consequences of, a vertical long run aggregate supply curve
KEY POINTS [ edit ]
The long-run is a planning and implementation phase. It is the conceptual time period in which
there are no fixed factors of production.
In the long-run, only capital, labor, and technology affect theaggregate supply curve because at
this point everything in the economy is assumed to be used optimally.
Aggregate supply is usually inadequate to supply ample opportunity. Often, this is fixed capital
equipment. The AS curve is drawn given some nominal variable, such as the nominal wage rate.
In the long run, the nominal wage rate varies with economic conditions
(high unemployment leads to falling nominal wages -- and vice-versa).
The equation used to calculate the long-run aggregate supply is: Y = Y*. In the equation, Y is the
level of economic production and Y* is the natural level of production.
TERM [ edit ]
long-run
The conceptual time period in which there are no fixed factors of production.
Give us feedback on this content: FULL TEXT [edit ]
Aggregate Supply
In economics, aggregate supply is defined
as the total supply of goods and services
that firms in a national economy are
willing to sell at a given price level.
Long-run in Economics
The long-run is the conceptual time period
in which there are no fixed factors of
production; all factors can be changed. In
the long-run, firms change supply levels in
response to expectedeconomic profits or
Register for FREE to stop seeing ads
losses.
Long-run Aggregate Supply Curve
In the long-run, only capital, labor, and technology affect the aggregate supply curve because
at this point everything in the economy is assumed to be used optimally. The long-run
aggregate supply curve is static because it shifts the slowest of the three ranges of the
aggregate supply curve. The long-run aggregate supply curve is perfectly vertical, which
reflects economists' belief that the changes in aggregate demand only cause
a temporary change in an economy's total output . In the long-run, there is exactly one
quantity that will be supplied.
Classical
In
te
rm
ed
ia
t
e
Price level
Keynesian
Real GDP
Aggregate Supply
This graph shows the aggregate supply curve. In the long­run the aggregate supply curve is perfectly
vertical, reflecting economists' belief that changes in aggregate demand only cause a temporary change
in an economy's total output.
The long-run aggregate supply curve can be shifted, when the factors of production change in
quantity. For example, if there is an increase in the number of available workers or labor
hours in the long run, the aggregate supply curve will shift outward (it is assumed the labor
market is always in equilibrium and everyone in the workforce is employed). Similarly,
changes in technology can shift the curve by changing the potential output from the same
amount of inputs in the long-term.
For the short-run aggregate supply, the quantity supplied increases as the price rises. The AS
curve is drawn given some nominal variable, such as the nominal wage rate. In the short run,
the nominal wage rate is taken as fixed. Therefore, rising P implies higher profits that
justify expansion of output. However, in the long run, the nominal wage rate varies with
economic conditions (high unemployment leads to falling nominal wages -- and vice-versa).
The equation used to calculate the long-run aggregate supply is: Y = Y*. In the equation, Y is
the level of economic production and Y* is the natural level of production.