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Chapter 13: Q.7 (page 332)

What shape is the long-nm aggregate supply curve? Why does it have this shape?

Short Answer

Expert verified

The LRAS curve (Long-Run Aggregate Supply) is totally vertical.

Step by step solution

01

Introduction of the long-nm aggregate c supply curve.

LRASis vertical shape parallel to y-axis. It's because, in the long run, real GDP is reliant on the supply of capital, labor, raw materials, and other non-price elements.

02

Explanation of solution.

Potential GDP, according to neoclassical economists, is the level at which all of an economy's resources are completely used. LRAS has a vertical form at the potential GDP level.

LRAS may move in the long run as resources grow, but not because of price changes. LRAS remains in the same position regardless of aggregate demand. As a result, a vertical straight line parallel to the pricing axis exists.

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Most popular questions from this chapter

Summarize the Keynesian and Neoclassical models.

Do neoclassical economics view prices and wages as sticky or flexible? Why?

Is it a logical contradiction to be a neoclassical Keynesian? Explain.

If aggregate supply is vertical, what role does aggregate demand play in determining output? In determining the price level?

Does neoclassical economics focus on the long term or the short term? Explain your answer.
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