Realgdpisfixed p lras ad ad y0 y lrasandgrowth

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Unformatted text preview: ggregate production function Y = f(K, L) – Real GDP depends on capital and labor Neither is affected by price Sets full employment (potential) GDP Long Run Aggregate Supply Long Run Aggregate Supply In the long run – y=f(K,L) – Everyone adjusts completely – No role for price – LRAS is vertical P LRAS AD y0 y Long Run Aggregate Supply Long Run Aggregate Supply In the long run – y=f(K,L) – Everyone adjusts completely – No role for price – LRAS is vertical If AD shifts – Prices rise – Real GDP is fixed P LRAS AD’ AD y0 y LRAS and Growth LRAS...
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