Business

Question

The long-run aggregate supply curve is vertical because it incorporates the assumptions of Keynesian theory. the economy will gravitate to the position of full employment when all variables are flexible. wages, prices, and interest rates are not flexible in the long run. many inputs are fixed.

1 Answer

  • Answer:

    the economy will gravitate to the position of full employment when all variables are flexible

    Explanation:

    In Economics, there are primarily two (2) factors which affect the availability and the price at which goods and services are sold or provided, these are demand and supply.

    The law of demand states that, the higher the demand for goods and services, the higher the price it would be sold all things being equal. On the other hand, law of supply states that the higher the price of goods and services, the lower the supply.

    In order to understand both short-run economic fluctuations and how the economy move from short to long run, we need the aggregate supply and aggregate demand model.

    An aggregate supply curve gives the relationship between the aggregate price level for goods or services and the quantity of aggregate output supplied in an economy at a specific period of time.

    The long-run aggregate supply curve is vertical because the economy will gravitate to the position of full employment when all variables are flexible.

    This simply means that, whatever makes the factors of production such as, land, labor, entrepreneurship, capital, or efficiency to either go up or down would certainly result in fluctuations in the economy of a particular country.

    Additionally, the long-run aggregate supply curve would shift rightward when immigration from foreign countries rises or technology improves.

NEWS TODAY

You May Be Interested