Final answer:
The distinctions between short-run and long-run aggregate supply curves, as well as the short-run and long-run Phillips Curves, relate to the impact of aggregate demand and aggregate supply over time. Short-run curves demonstrate price and output responsiveness, whereas long-run curves reflect potential output and natural unemployment rates with no inflation-unemployment tradeoff.
Step-by-step explanation:
The commonality between the short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) curves and their counterparts in the Phillips Curve lies in the responsiveness of prices to supply and demand over different time horizons. In the short run, the SRAS curve is upward sloping, representing a positive relationship between price levels and real GDP.
This is because output prices can change faster than input prices, giving producers incentives to increase supply when prices are rising. Conversely, in the long run, the LRAS curve is vertical, indicating that the economy is at its potential output and price changes do not affect the level of goods and services the economy can produce, given its existing workers, physical capital, technology, and institutions.
Similarly, the short-run Phillips Curve suggests there is a tradeoff between inflation and unemployment because as one decreases, the other tends to increase. This correlates with a positively sloped SRAS. However, the long-run Phillips Curve is vertical, reflecting the concept that there is no tradeoff between inflation and unemployment in the long run; the rate of unemployment will gravitate toward its natural rate regardless of inflation. This verticality mirrors the long-run vertical LRAS curve.
In the short run, aggregate demand plays a dominant role as it influences the level of real GDP and price level. This aligns with Keynesian economics, which posits that demand drives supply in the short term. Meanwhile, aggregate supply is more influential in the long run, consistent with neoclassical economics and Say's law, which suggests that supply creates its own demand.