In the context of the AD-AS model, what is a key difference between short-run and long-run aggregate supply?
Understand the Problem
The question is asking for a key difference between short-run and long-run aggregate supply in the context of the AD-AS model. It provides multiple choice options to identify which statement accurately describes this difference.
Answer
Short-run aggregate supply is upward sloping and can exceed or fall short of potential GDP, while long-run aggregate supply is vertical at potential GDP.
In the short run, aggregate supply can deviate from potential GDP based on demand, and is upward sloping reflecting price and wage stickiness. In the long run, aggregate supply is fixed at potential GDP, and is represented by a vertical line, unaffected by price level changes.
Answer for screen readers
In the short run, aggregate supply can deviate from potential GDP based on demand, and is upward sloping reflecting price and wage stickiness. In the long run, aggregate supply is fixed at potential GDP, and is represented by a vertical line, unaffected by price level changes.
More Information
The SRAS curve is determined by sticky prices and wages, meaning they do not adjust immediately to changes in economic conditions. The LRAS, by contrast, assumes full employment and flexibly adjusting prices.
Tips
A common mistake is thinking the position of the SRAS curve can change due to changes in consumer tastes or technology while it primarily shifts due to input cost changes.
Sources
- The web page with info on - Khan Academy - khanacademy.org
- Aggregate Supply Curve SR LR Examples - AnalystPrep - analystprep.com
- Short- and Long-Run AD and AS: Short-Run Aggregate Supply - Saylor - learn.saylor.org
AI-generated content may contain errors. Please verify critical information
