Macro Unit 3, Question 8: Inflationary Gap and the Long Run

The video tutorial explains the concept of the long run supply curve and its significance in understanding full employment and inflationary gaps. It discusses how low unemployment can lead to inflationary pressures, causing prices and wages to rise. The tutorial also covers how the economy adjusts to a new long run equilibrium when resource prices increase, leading to a shift in the supply curve and a return to full employment.

Describe the business cycle as mentioned in the text and its impact on the economy.

What happens to the aggregate supply curve when there is an inflationary gap?