Productivity growth increases the efficiency of production, shifting the short-run and long-run aggregate supply curves to the right as more output is produced per worker. Changes in input prices shift the short-run aggregate supply curve left or right depending on whether input prices rise or fall, but they typically don't affect the long-run aggregate supply curve.
- The question revolves around what factors shift the short-run aggregate supply (SRAS) curve, and whether these factors also affect the long-run aggregate supply (LRAS) curve.
- The two most significant factors discussed here are productivity growth and changes in input prices.
- Productivity growth is typically the most crucial factor shifting the SRAS curve; it refers to the output produced per worker or GDP per capita.
- As productivity increases, the same quantity of labor can produce more output, shifting the SRAS curve to the right.
- This reflects an improvement in a nation's economic efficiency and, hence, an increase in the full employment level of GDP, which also shifts the LRAS to the right.
- When discussing changes in input prices, an increase can shift the SRAS curve to the left as it becomes more expensive to produce goods and services at every price level.
- Conversely, a decrease in input prices shifts the SRAS curve to the right since it becomes cheaper to produce goods, leading to a higher supply of GDP at every price level.
- However, changes in input prices usually do not affect the LRAS as this curve is determined by the economy's potential output, which is not influenced by price level changes.