Question 1

What is long-run aggregate supply (LRAS)?

Accepted Answer

A curve that shows the relationship between the price level and real GDP if all prices and wages were fully flexible

(price can change, but output cannot, so the curve is a straight vertical line)

Question 2

What is a consequence of flexible long-run prices/wages?

Accepted Answer

There is no long-run tradeoff between inflation and unemployment

(in contrast to the short-run tradeoff)

Question 3

What is maximum sustainable capacity?

Accepted Answer

The total output an economic system will produce over a set period of time if all resources are fully employed

Question 4

Why is the LRAS vertical at the full-employment level of output?

Accepted Answer

In the long run, prices and wages are flexible, so output isn't affected by price-level

(LRAS only changes with resources and productivity, just like PPC)

Question 5

What can shift the LRAS?

Accepted Answer

Change in resource quantity/quality

Change in technology

(same as the PPC)

3.4 Long-Run Aggregate Supply, AP Macroeconomics Flashcards