long run AD

long run AD - because it remains constant at the level of...

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IB Economics – Drogaris Theory of the Firm – AD and AS controversy Gaith Kalai Page 240; 5. 5. When in the long run, aggregate demand influences only the price level, leaving the real GDP unchanged, why is that? In a perfectly competitive economy, changes in aggregate demand can only influence the real GDP in the short term because AD cannot have influence on the real GDP, which is the value of the goods and services produced for specified period of time at base year (regulated) prices,
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Unformatted text preview: because it remains constant at the level of potential output and the LRAS curve. IN the figure below, the change from AD1 to AD2 moved the whole economy to point D (from point A), while the real GDP remained unchanged. This shows how useful this base-year technique is as it acts as a regulator for economists, keeping studying aggregate demand and supply of a country relative to recent history and relevant to inflation (whether negative or positive)....
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This document was uploaded on 10/26/2011 for the course PLIR 2050 at UVA.

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