Long-Run Aggregate Supply

Question 1

What do classical economics believe about LRAS?

Answer 1

All factors of production willing to be employed will be so, and so the economy will reach a limit to the output it can produce in the long run

Question 2

Who would not be working? LRAS

Answer 2

Those who are voluntarily unemployed because they will not join the workforce until wage rates increase

Question 3

Why is classical LRAS vertical?

Answer 3

The economy is at capacity

Question 4

What is LRAS equal to?

Answer 4

The PPF

Question 5

What does an outward shift of LRAS imply?

Answer 5

An increase in the economy’s productive capacity

Question 6

What is an outward shift of LRAS caused by?

Answer 6

The same factors of a PPF
Any factor that increases either the quantity or quality of factors of production

Question 7

What are examples of changes in quantity?

Answer 7

Increase in working population
Discovery of new raw resources
Increased factor mobility
Increased investment

Question 8

What are examples of changes in quality?

Answer 8

Improvements in tech
Improvements in productivity
Enterprise
Economic incentives

Question 9

What did Keynes believe?

Answer 9

There is no distinction to be made between short run and long run.