IB Economics 3.2.8 Shifts of the as Curve Over the Long-run Notes

Determinants of aggregate supply over the long-run

While changes in the PL cause movements along the LRAS curve / Keynesian AS curve, changes in the production possibilities of the economy shift the curves.

The factors that change the production possibilities of an economy can hence be understood as the determinants of aggregate supply over the long-run.

The determinants of aggregate supply over the long-run covered in the IB curriculum are:

Changes in the quantity and/or quality of factors of production.

Improvements in technology.

Increases in efficiency.

Changes in institutions.

Exam technique

In IB Economics long-answer questions, it is very important to explain processes step-by-step, without skipping any steps.

In this section, the effect of changes in the determinants of SRAS will be explained in such way.

Changes in the quantity and/or quality of factors of production

Increase in the quantity and/or quality of factors of production → rightward shift in LRAS / AS

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Note

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Tip

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Duis aute irure dolor in reprehenderit in voluptate velit esse cillum.

Note

Just as the SRAS curve can shift in the short-run, both the LRAS curve and the Keynesian AS curve can shift in the long-run.

Shifts in the long-run aggregate supply occur when there is growth in the production possibilities of the economy:

If there is an increase in the production possibilities, the economy has grown its factors of production and so can produce more real output in the long-run (when there is full employment of resources).
Therefore, in the long-run, there is an increase in the real output an economy produces at all possible price levels.
This shifts the LRAS curve and the Keynesian AS curve.

Shifts in the LRAS curve

When there is an increase in the production possibilities of an economy, the LRAS curve shifts to the right (LRAS1→LRAS2) to a new potential output (Yp1→Yp2).
When there is a decrease in the production possibilities of an economy, the LRAS curve shifts to the left (LRAS1→LRAS3) to a new potential output (Yp1→Yp3).

Shifts in the Keynesian AS curve

When there is an increase in the production possibilities of an economy, the Keynesian AS curve shifts to the right (AS1→AS2) to a new potential output (Yp1→Yp2).
When there is a decrease in the production possibilities of an economy, the Keynesian AS curve shifts to the left (LRAS1→LRAS3) to a new potential output (AS1→AS3).

Determinants of aggregate supply over the long-run

While changes in the PL cause movements along the LRAS curve / Keynesian AS curve, changes in the production possibilities of the economy shift the curves.
The factors that change the production possibilities of an economy can hence be understood as the determinants of aggregate supply over the long-run.

The determinants of aggregate supply over the long-run covered in the IB curriculum are:

Changes in the quantity and/or quality of factors of production.
Improvements in technology.
Increases in efficiency.
Changes in institutions.

Exam technique

In IB Economics long-answer questions, it is very important to explain processes step-by-step, without skipping any steps.

In this section, the effect of changes in the determinants of SRAS will be explained in such way.

IB Economics 3.2.8 Shifts of the as Curve Over the Long-run Notes

Shifts in the LRAS curve

Shifts in the Keynesian AS curve

Determinants of aggregate supply over the long-run

Changes in the quantity and/or quality of factors of production

Increase in the quantity and/or quality of factors of production → rightward shift in LRAS / AS

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account

Shifts in the LRAS curve

Shifts in the Keynesian AS curve

Determinants of aggregate supply over the long-run

Changes in the quantity and/or quality of factors of production

Increase in the quantity and/or quality of factors of production → rightward shift in LRAS / AS

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account

1. Introduction to Economics2 subtopics

2. Microeconomics12 subtopics

3. Macroeconomics7 subtopics

4. The Global Economy10 subtopics

IB Economics 3.2.8 Shifts of the as Curve Over the Long-run Notes

1. Introduction to Economics2 subtopics

2. Microeconomics12 subtopics

3. Macroeconomics7 subtopics

4. The Global Economy10 subtopics

Shifts in the LRAS curve

Shifts in the Keynesian AS curve

Determinants of aggregate supply over the long-run

Changes in the quantity and/or quality of factors of production

Increase in the quantity and/or quality of factors of production → rightward shift in LRAS / AS

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account

Shifts in the LRAS curve

Shifts in the Keynesian AS curve

Determinants of aggregate supply over the long-run

Changes in the quantity and/or quality of factors of production

Increase in the quantity and/or quality of factors of production → rightward shift in LRAS / AS

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account