Long run AS

Question 0

What is the classical view to AS?

Answer 0

In the long run the economy will operate at full capacity and there will be no unemployed resources in the economy, so the AS curve is vertical.

Question 1

Define AS?

Answer 1

The amount that firms are willing to produce at various price levels.

Question 2

What is the Keynesian view to AS?

Answer 2

The Keynesian view is that the equilibrium level of output can occur below the full employment level of output, so the AS curve has a backward bending L shape with three distinct sections: spare capacity, bottlenecks and full employment.

Question 3

Why is there a bottleneck in the Keynesian LRAS curve?

Answer 3

The bottleneck section is where some constrictions in the supply chain cause cost and wage pressures to build up in the economy (often certain types of labour when in short supply can have their price bid up, eg. Construction workers).

Question 4

What factors can cause shifts in the AS curve?

Answer 4

Change in quantity or quality of labour
Change in quantity or quality is of capital
Change in quantity or quality of land