Sunday, January 22, 2012

What is the difference between the long run and short run aggregate supply curves?

I'd say that there are two major
differences.


The first is that one is short run and the
other is long run.  The short run AS curve is based on the assumption that all of the
things that determine aggregate supply are being held constant.  In the long run, these
determinants of AS are not held constant.


That leads to the
second difference, which is the shapes of the curves.  Because all determinants are
being held constant, the SRAS curve is sloped -- it is upward sloping.  By contrast, the
LRAS curve is vertical.  It is vertical because, in the long run, there is no
correlation between price level and the real level of production in the
economy.

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