The Long Run Aggregate Supply Curve

The Long Run Aggregate Supply Curve

1. Long Run Definition: The resources and wages that increase when the price level increases.

2. The aggregate price level is flexible and does not have sticky wages

3. has no effect on the quanity of the aggregate output supply

4. Figure 18.3 describes all prices, including wages, are flexible. The graph shows a vertical line representing the potential output. The reason why the line is not diagonal like short run is because long run has no effect on the quanity of aggregate output supplied

5. figure 18.4 describes the actual potential output between the years of 1989 and 2009. There's a black line that represents potential and a wiggly blue line represents the actual aggregate output. As shown in the graph, the it exceeds actual potential twice and roughly excceds most of the time

6. Short Run Aggregate supply curve

   • focuses on the left and right shiftwards
   • The aggregate price level is inflexible and does have sticky wages
   • Both effects the aggregate supply curve

7. On figure 18.5, the diagonal lines of the short run meets with the vertical long run. When both lines meet up, it creates equilibrium