LRAS Flashcards
1
Q
Which factors shift LRAS
A
Change in quantity or quality of FOP, changes in tech and changes in factor market flexibility
2
Q
What is the Neo-Classical view of LRAS
A
In LR, a change in PL won’t affect output. SR deviations from the LR equilibrium will be restored by firms changing production
3
Q
Why do Keynesian economists disagree that the market will return to Classical LRAS
A
Mainly sticky wages. Classical assumes that firms will be able to cut wages when PL decreases, but this is unrealistic. This is an inflexible factor market
