long run aggregate supply

Question 1

what does the AS curve show

Answer 1

the total quantity of goods and services that firms in an economy and willing to produce at different price levels

Question 2

what does the classical AS curve look like

Answer 2

verticle at the full-employment level of output, reflects the belief that in the long run, the economy is always at full employment due to the flexibility of prices and wages

Question 3

what is Say’s law

Answer 3

assumes that markets clear and that supply creates its own demand

Question 4

key insights of the classical view

Answer 4

assumes that markets clear and that supply creates its own demand (say’s law)

long term output is not affected by changes in the price level

suggests that nay governemnt intervention is unnecessary and potentially harmful, as the economy self-adjusts to full employment

Question 5

what is the shape of the keynsian AS curve

Answer 5

backwards L shape

horizontal - at low levels of output and employment, the curve is horizontal

upward sloping - as the economy approaches full employment, the curve starts to slope upwards , reflecting increasing oressure on wages and prices

verticle - at full employment, the curve becomes verticle, indicating that output is at its maximum sustainable level, and anyfurther demand increase will only lead to higher prices