Total planned output of goods and services in an economy at a given time and price level.
Aggregate Supply Shock
An inflation shock or a shock to potential national output reduces real output and can increase the rate of inflation.
Costs of Production
Factor prices, including rent, wages and interest.
Classical LRAS
LRAS is inelastic. Real GDP is determined by supply-side factors. A long-term, increase in AD (faster than growth in LRAS), will just cause inflation and will not increase real GDP.
Competition Policy
Any policy which seeks to promote competition & efficiency in markets and industries.
Demographic Change
Any change in the population eg. age, dependency ratios, life expectancy, family structures, birth rates etc.
Innovation
The commercial development of exploiting new or improved goods and services.
Invention
The creation of a new product, service or concept.
Keynesian LRAS
Assumes wages and prices are fixed until near YFE is reached. There is spare capacity, LRAS is perfectly elastic, the price level starts to rise near YFE. At YFE it is vertical as no further output can be produced.
Keynesian Unemployment
Unemployment caused by a lack of AD in the economy –a deficiency of private sector spending causes both output and employment to contract.
LRAS
Determined by the state of technology, productivity, factor mobility and incentives. The LRAS curve is assumed to be vertical and represents the normal capacity level of output for the economy.
