long run aggregate supply curve

Long-term aggregate supply (LAS) is a concept used in macroeconomics to describe the supply-side of the economy in long-term macroeconomic analysis. It is one of two components of aggregate supply, which is the sum of short-term aggregate supply (SAS) and long-term aggregate supply (LAS).

Long-term aggregate supply is the amount of goods and services that firms are willing to produce and sell in the long term if all prices and wages reflect the underlying forces of supply and demand. In the long-term, the economy is assumed to move to a point of full-employment due to price and wage adjustments. This is known as the natural rate of unemployment. To determine a countrys long-term aggregate supply, economists look at the potential output of the economy when output fluctuates about a point of full-employment, known as the potential output or full-employment output. Potential output or full-employment output is determined by the production of labor, capital and technology.

In analyzing long-term aggregate supply, economists look at the interaction between aggregate demand and aggregate supply and seek to understand the natural rate of unemployment and output when the economy is at full employment. Long-term aggregate supply is driven by the factors of production such as capital and labor, population growth rate, technological advances and productivity, and the level of government intervention in the economy.

Long-term aggregate supply can be thought of as a measure of the “effective demand” in the economy. If a country has a higher effective demand (i.e., demand is more than supply), then prices and wagesrise. The expanding demand increases the level of aggregate output in the long-run and there is an associated rise in the natural rate of unemployment. On the other hand, a lower effective demand (i.e., demand is less than supply) means that wages and prices fall, causing aggregate output to contract in the long-run. In this case, the natural rate of unemployment also falls.

Long-term aggregate supply can be affected by changes in the production possibilities of a countrys factors of production, as well as by changes in the prices of international commodities. Changes in the production possibilities may include technological advances, increases in the levels of capital, labor and training, increases in efficiency and decreases in prices. Changes in the prices of international commodities may include changes in the exchange rate, levels of national and international tariffs and trade restrictions, and changes in the prices of inputs used in production and exported.

Other domestic and international factors also affect long-term aggregate supply. These include changes in the legal and political environment, population growth rate, labor force participation and labor productivity, financial markets and money supply, and inflationary expectations.

Long-term aggregate supply in an economy is a dynamic concept that reflects the aggregate of all of these factors and can change from year to year in response to changes in the economic environment. Changes in long-term aggregate supply can have a significant effect on economic output, employment, inflation and interest rates. For example, if long-term aggregate supply is high, economic output is likely to be high, inflation should be low, and interest rates should be low as well. On the other hand, if long-term aggregate supply is low, economic output is likely to be low, inflation should be high, and interest rates should be high.

In conclusion, long-term aggregate supply is an important concept in macroeconomics. It is a measure of the “effective demand” in an economy and reflects the aggregate of factors such as technology, capital, labor and trade policy, population growth and financial markets. Changes in long-term aggregate supply can have a significant effect on economic output, employment, inflation and interest rates.

Long-term aggregate supply refers to the total supply of goods and services in an economy over a long period of time. It is also known as the productive capacity of an economy. Long-term aggregate supply can be represented graphically by a long-term aggregate-supply (LAS) curve.

The long-term aggregate supply curve is drawn on a graph with the quantity of real production (real GDP) on the X axis and the price level (measured by the consumer price index or the GDP deflator) on the Y axis. The LAS curve represents the quantity of real output that will be produced in an economy at each possible price level.

As the price level rises, firms will be able to make a greater profit on the real output that they produce, providing them with an incentive to produce more. As a result, the LAS curve is upward sloping.

The long-term aggregate supply curve is a theoretical concept. In reality, firms can only increase output to a certain level before they are limited by bottlenecks such as a lack of inputs, or a lack of technology.

The long-term aggregate supply curve shifts due to a variety of factors. In the long-term, it is affected by changes in technology, human capital, and factor productivity. Changes in macroeconomic policies such as tax rates, government spending, and interest rates also affect the position of the LAS curve.

In the short-term, the position of the LAS curve can be temporarily shifted by supply shocks, such as an unexpected increase in the price of oil. In addition, changes in the exchange rate can affect the supply of output in an economy.