Question

The LRAS model shows that real output as GDPr...

Answer 1

The LRAS model indicates that the level of real GDP is determined by the economy's potential GDP, depicted as a vertical line in the long-run aggregate supply curve, which shifts rightward over time due to increases in productivity and technology, reflecting long-term economic growth.

Step-by-step explanation:

The LRAS model shows that real output as GDPr represents the economy's long-term production capacity, depicted as a vertical line at the level of potential GDP in neoclassical economics.

This implies that in the long run, the level of real GDP is determined by the aggregate supply, irrespective of the position of the aggregate demand curve.

The long-run aggregate supply, or LRAS curve, is therefore vertical and indicates the level of an economy's full production capabilities.

As factors such as productivity, human capital, and technological advancements improve, there is a rightward shift in the LRAS curve, which reflects a rise in potential GDP and, herein lies the basis for long-term economic growth.

Answer 2

Main Answer:

The LRAS model illustrates that real output, represented by GDP, is determined by the economy's productive capacity and potential output in the long run.

Step-by-step explanation:

The Long-Run Aggregate Supply (LRAS) model is a macroeconomic concept depicting an economy's potential output when all factors of production, such as labor and capital, are fully utilized. In this model, real output, often measured by Gross Domestic Product (GDP), is determined by the maximum sustainable production level. Mathematically, LRAS can be expressed as:

`\[Y_(LRAS) = \bar{L} * \bar{A}\]`

where
`\(Y_(LRAS)\)` is the potential output,
`\(\bar{L}\)` is the full-employment level of labor, and
`\(\bar{A}\)` is the productivity of other inputs. The LRAS curve is vertical, indicating that in the long run, changes in aggregate demand do not alter potential output. Understanding this model is crucial for analyzing an economy's capacity for growth and the impact of various economic policies on its long-term performance.