Shift in the LRAS & AS

Long-run
Unit 9 - Lesson 9.5

Learning outcomes:

Explain using the two models, how factors leading to changes in the quantity
and quality of the factors of production can shift the LRAS & AS curves to the
right.

Economic Growth
Increases in Potential Output signify Economic Growth.
Improvements in or changes in quantity of factors of production will increase the
potential output of an economy.

In Unit 1 we learned that Economic Growth can

be represented using a PPF model by showing
an outward shift in the PPF.

This represents an increase or improvement

with the factors of production within a country
and an increase in Potential Output.

http://www.economicsonline.co.uk/How%
20markets%20work%20graphs/Growth.png

LRAS & AS - Economic Growth

Economic Growth in both the New Classical Model and
Keynesian Model are represented by rightward shifts in
the LRAS and AS curves.
Factors that can lead to shifts in LRAS & AS:
1.
2.
3.
4.
5.
6.

Increase in quantities of factors of production

Improvements in the quality of factors of production
Improvements in technology
Increase in efficiency
Institutional Changes
Reductions in the NRU
http://www.bized.co.
uk/sites/bized/files/images/diagrams/big/keyn_a

Long Term Growth vs. Short term Fluctuations

Long Term Growth
Business Cycle:

An increase in the potential output.

Potential Output line becomes
steeper.

Short-term Fluctuations
Business Cycle:

Represented by the Actual

Ouptut
Peaks, troughs, expansion and
contraction

New Classical & Monetarist:

Rightward shifts in the LRAS & AS

curve.

New Classical & Monetarist:

Increases and decreases in the
AD and SRAS.