LRAS Flashcards
what does LRAS stand for
Long run aggregate supply
why is the LRAS curve is fixed
in the LR there is a LIMIT to how much firms can increase their supply because they run into CAPACITY CONSTRAINST (there is a fixed amount of labour and capital AVAILABLE) aka you are always using your maximum capital amount
what is the LRAS curve like
it is fixed at a given level of output, whatever the price level
what does a AS curve look like on a Keynesian model
almost straight line - gradual increase - steep straight line increase
why does the Keynesian model look like the way it does
keynesian said that businesses don’t work at maximum capacity ALL THE TIME = takes time to reach maximum point BUT there is still a maximum point
what does a AS curve look like on a classic model
a straight line
what does an outward shift on a LRAS graph show - what does this allow
an increase in POTENTIAL GDP - allows the economy to operate at a higher level of equilibrium GDP
what are the factors increasing LRAS (4)
- increase in supply of labour + increase in human capital
- increase in investment
- technological progress
- discovery of raw materials
an example of increase in human capital
net immigration
two examples of investment
Gerkin, shard
an example of technological progress
the internet
an example of discovery of raw materials
oil fields
4 examples of greater incentives to work
gov: increase in minimum wage, subsides, lower income tax, cut benefits
