3.4 Long-Run Aggregate Supply - AP Econ

Why do economists use the AD-AS model?

• To represent the relationship btwn price level and aggregate output in an economy

• To illustrate how output, employment, and the price level respond to macroeconomic shocks

• To explain the relationship between trade-offs and comparative advantage

• To show that prices are sticky in the long-run.

Tags

Mod-2

Define the short-run and the long-run

• In the long run all prices are fully flexible

• In the short run, some input prices are fixed

• In the long run prices are sticky

• In the short run, prices are fully flexible

Tags

Mod-2

Mod-2.E

Mod-2.E.1

What is a consequence of flexible long-run prices and wages?

• The lack of a long-run trade-off btwn. inflation and unemployment

• The presence of a long-run trade-off btwn. inflation and unemployment

Tags

Mod-2.E

Define the long-run aggregate supply curve

• The LRAS curve corresponds to the PPC because they both represent maximum sustainable capacity

• The LRAS corresponds to the PPC because they both use land, labor, and love

• Kindness is my number one value

Tags

2.F

2.F.1

What is maximum sustainable capacity?

• The total output an economic system will produce over a set period of time if all resources are fully employed

• The total output an economic system will produce in the short-run if all resources are fully employed

Where is the LRAS vertical?

• At the full-employment level of output

• At the zero inflation level of output

• At the 2% inflation level of output

• At 2% real GDP growth

Why is the LRAS curve vertical?

• In the long run wages and prices fully adjust

• In the long run prices are infinite

• In the long run, we're all dead

• In the long run wages don't equal productivity.

Match the following

• Economy in recession, below full employment, UE is above the natural rate

• 
• Economy experiencing inflation, economy above full employment, UE < NRU

• 
• Economy at full employment in long-run equilibrium, experiencing NRU

• 

Tags

Mod-2

Mod-2.F

What causes the LRAS to shift (select all)

• Changes in productivity

• Changes in quality and quantity of the factors of production

• It happens by itself if we just wait

• Demanding higher wages

Tags

Mod-2

Mod-2.f