4-2c LRAS and PPC
Remember the PPC? It shows a combination of goods and services that can be produced by an economy. If
production takes place on the line, then the economy is using its resources in the most efficient manner. If, however, the economy is producing inside the PPC, there is unemployment of resources. The LRAS is similar to the PPC in that it shows the level of production for an economy if it uses all of its resources. The LRAS is a vertical line at the 4%‐6% level of unemployment on the AD/AS graph.
Just like the PPC, in order to show growth in an economy—cause LRAS to shift right—we would need more or better
resources or improved technology. The LRAS differs from the SRAS in that it shows an economy’s potential output
over a sustained period. SRAS can be greater in the short‐run, but that is only by over‐employing a country’s
resources. For example, workers can work overtime, and machines can operate for longer hours, but this level of
activity can’t be sustained over the long run. This is why it is possible to have output greater then FE output.
This quiz requires you to log in.
Please enter your Quia username and password. |
|
|
|
