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Why is the long-run Aggregate Supply (LRAS) Curve a vertical line? What causes it to shift?

Why is the long-run Aggregate Supply (LRAS) Curve a vertical line? What causes it to shift?

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Expert Solution

Why is the long-run Aggregate Supply (LRAS) Curve a vertical line?

The curve denotes the potential output level and it is calculated using all the capacity of available resources and productivity and in the long run, the inputs and prices are completely flexible so the curve is vertical at the output level and does not changes because of changes in the price level (the direct effect) and also it does not change because of money supply, interest rate, bond prices, exchange rate and so( indirect effects)

What causes it to shift?

It shifts if there is a change in the productivity or change in resources available in the economy or in some cases outside the economy ( the key resources like oil is outside of the country for most of the economics).

As the productivity increases the curve shifts to the right and if resources get exhausted it shifts to the left, also if new resources get added then it shifts to the right.

Rahul Sunny answered 8 months ago
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