Long - GDP that arises when the economy is fully employing...

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Long-run aggregate supply curve. The long-run aggregate supply (LAS) curve describes  the economy's supply schedule in the long-run. The long-run is defined as the period  when input prices have completely adjusted to changes in the price level of final goods.  In the long-run, the increase in prices that sellers receive for their final goods is  completely offset by the proportional increase in the prices that sellers pay for inputs.  The result is that the quantity of real GDP supplied by all sellers in the economy is  independent of changes in the price level. The LAS curve—depicted in Figure  1  (b)—is  a vertical line, reflecting the fact that long-run aggregate supply is not affected by  changes in the price level. Note that the  LAS  curve is vertical at the point labeled as the  natural level of real GDP. The natural level of real GDP is defined as the level of real 
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Unformatted text preview: GDP that arises when the economy is fully employing all of its available input resources. Changes in aggregate supply. Changes in aggregate supply are represented by shifts of the aggregate supply curve. An illustration of the ways in which the SAS and LAS curves can shift is provided in Figures 2 (a) and 2 (b). A shift to the right of the SAS curve from SAS 1 to SAS 2 of the LAS curve from LAS 1 to LAS 2 means that at the same price levels the quantity supplied of real GDP has increased . A shift to the left of the SAS curve from SAS 1 to SAS 3 or of the LAS curve from LAS 1 to LAS 3 means that at the same price levels the quantity supplied of real GDP has decreased...
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This note was uploaded on 11/18/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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