LRAS

Question 1

Which factors shift LRAS

Answer 1

Change in quantity or quality of FOP, changes in tech and changes in factor market flexibility

Question 2

What is the Neo-Classical view of LRAS

Answer 2

In LR, a change in PL won’t affect output. SR deviations from the LR equilibrium will be restored by firms changing production

Question 3

Why do Keynesian economists disagree that the market will return to Classical LRAS

Answer 3

Mainly sticky wages. Classical assumes that firms will be able to cut wages when PL decreases, but this is unrealistic. This is an inflexible factor market