   Chapter 15.4, Problem 4QQ

Chapter
Section
Textbook Problem

Explain why the long-run aggregate-supply curve is vertical. • Explain three theories for why the short-run aggregate-supply curve slopes upward. • What variables shift both the long-run and short-run aggregate-supply curves? • What variable shifts the short-run aggregate-supply curve but not the long-run aggregate-supply curve?

Sub part (a):

To determine

Why long-run aggregate supply curve is vertical.

Explanation

The supply depends upon the price level in the economy. When the price level is higher, the suppliers will be receiving higher income and this would incentivize them to increase the supply in the economy and vice versa. The aggregation of the supply curves of all the firms in the economy is known as the aggregate supply curve.

In the short run period, the aggregate supply curve represents the relationship between the price level in the economy and the supply by the firms. In the long run period, the aggregate supply curve represents the relationship between the price level in the economy and the quantity of real GDP supplied by the firms in the economy...

Sub part (b):

To determine

Why short-run aggregate supply curve is slope upward.

Sub part (c):

To determine

Variable that shifts the long â€“run and short -run supply curve.

Sub part (d):

To determine

Variable that shifts the short -run supply curve.

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