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Long-run aggregate supply (LRAS) — Over the long run, only capital, labour, and technology affect the LRAS in the macroeconomic model because at this point everything in the economy is assumed to be used optimally. In most situations, the LRAS is viewed as static because it shifts the slowest of the three.
[5]: 266 Under the premise that the price level is flexible in the long run, but sticky or even completely fixed under shorter time horizons, it is usual to distinguish between a long-run and a short-run aggregate supply curve. Whereas the long-run aggregate supply curve (LRAS) is vertical, the short-run aggregate supply curve will have a ...
[20] [21] In later macroeconomic usage, the long-run is the period in which the price level for the overall economy is completely flexible as to shifts in aggregate demand and aggregate supply. In addition there is full mobility of labor and capital between sectors of the economy and full capital mobility between nations.
The SAS (Surprise aggregate supply) curve is in the long run a vertical line called the EAS (Equilibrium aggregate Supply) curve. The short run SAS curve is given by ...
In this earlier model, supply (specifically labor supply) is a direct function of real wages: more work will be done when real wages are high and less when they are low. Under this model, unemployment is "voluntary". [3] In 1972 Lucas made a second attempt at modelling aggregate supply. [3]
Short run increases in demand can cause output to increase, putting upward pressure on prices. In the long run, this can cause demand to decrease; [14] or, if demand remains at a higher quantity of output, then the aggregate supply curve will also shift to a higher level of output and reach equilibrium at a higher quantity. Growth in long-run ...
The main assumption in RBC theory is that individuals and firms respond optimally over the long run. It follows that business cycles exhibited in an economy are chosen in preference to no business cycles. This is not to say that people like to be in a recession. Slumps are preceded by an undesirable productivity shock, which constrains the ...
In the long run, the economy returns to [the point] where the aggregate-demand curve crosses the long-run aggregate-supply curve." [1] History