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The long run is a amount of time where firms have the ability to adjust their activities to maximise costs of production. This is shown on the LRAS model.
Influences Shifts in the LRAS Curve (TERP)
- Improvements in Technology
- Increases in Efficiency
- Increaases in Resources
- Immigration (Population)
Shifts in the LRAS curve allow us to move our long-run equilibrium. TERP.excalidraw
The actual equilibrium can go above potential LRAS equilibrium, chances are we are operating at about 3-3.5%, we should be above our growth target here. This can only exist in the short-term unless full employment rises..
Describing Long-run Equilibrium in essay
Example - Consumer Confidence falls from a economy in long-run equilibrium. ( AD Decrease)
Due to a lack of consumer confidence in the economy the AD curve will shift to the left (
>> ). The economy which intiially was in long run equilibrium, will see a declien in the gernal level of rices ( >> ) and there will be a fall in the level of GDP and GNI from ( >> ) The economy now has a contractioonary gap. Effects
Economic Growth decrease
Emloyment decrease
General Level of prices decreeases (Stagflation maybe?)
Govt economic Policy Causing: - Decrease in Tax Revenue - Increase in Government Spending >> Worsening of Budget Balance
Characteristic of a Downswing / Trough or early stage of an upswing
Example - Housing Prices increase at Long-run equilibrium ( AD Increase)
Due to an increase in housing prices in the Australian real estate market, consumer stock of wealth has risen shifting the AD curve (
>> ). As a result the genereral level of prices in the Australian economy will rise ( , >> ) as will the level of real GDP, & GNI, ( >> ). The Economy is expericencing an expansionary gap. Effects
Economic Growth increase
Emloyment increases?
General Level of prices rises (Inflation)
Govt economic Policy ? Causing: - Increase in Tax Revenue - Decrease in Government Spending >> Improving of Budget Balance
Characteristic of a Turning point.
kinda irrelavent
Shift of SRAS left in long-ru nequilibrium will cause an increase in unemployment but not as much as a shift in the AD curve to the left