The long-run equilibrium level of RGDP only changes when the LRAS shifts.

Question

Quizplus · Accepted Answer

The long-run equilibrium level of Real Gross Domestic Product (RGDP) is determined by the potential output of the economy, which is determined by the level of technology, capital stock, and labor force. The potential output is represented by the Long-Run Aggregate Supply (LRAS) curve. Therefore, any changes in the LRAS will shift the potential output level, which will result in a change in the long-run equilibrium level of RGDP. In the short-run, changes in aggregate demand can cause fluctuations in output levels, but in the long-run, the equilibrium level of RGDP only changes when the LRAS shifts.

The Long-Run Equilibrium Level of RGDP Only Changes When the LRAS