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What causes a decrease in long-run aggregate supply?

User Toney
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Final answer:

A decrease in long-run aggregate supply can be caused by factors such as a decline in consumer confidence, a pandemic, or a decline in business and consumer confidence.

Step-by-step explanation:

A decrease in long-run aggregate supply can be caused by factors such as a decline in consumer confidence that leads to less consumption and more saving, a pandemic that temporarily reduces the supply of workers, or a decline in business and consumer confidence.

For example, during the COVID-19 pandemic, many workers became sick, causing a reduction in the supply of workers and a leftward shift in the short-run aggregate supply curve. This resulted in a reduction in the supply of goods and services.

In the neoclassical view, changes in aggregate demand can have a short-run impact on output and unemployment, but in the long run, potential GDP and aggregate supply determine real GDP's size.

User Airith
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