CHAPTER 31 AGGREGATE DEMAND AND AGGREGATE SUPPLY 713 goods and services is limited by its labor, capital, natural resources, and tech-nology. Thus, when all prices in the economy rise together, there is no change in the overall quantity of goods and services supplied. WHY THE LONG-RUN AGGREGATE-SUPPLY CURVE MIGHT SHIFT The position of the long-run aggregate-supply curve shows the quantity of goods and services predicted by classical macroeconomic theory. This level of production is sometimes called potential output or full-employment output. To be more accurate, we call it the natural rate of output because it shows what the economy produces when unemployment is at its natural, or normal, rate. The natural rate of output is the level of production toward which the economy gravitates in the long run. Any change in the economy that alters the natural rate of output shifts the long-run aggregate-supply curve. Because output in the classical model depends on labor, capital, natural resources, and technological knowledge, we can catego-
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.