Short-run and long-run aggregate supply

Learning objectives

Define short-run aggregate supply (SRAS) and explain why it slopes upward: nominal wages and other input prices are sticky in the short run while output prices are flexible

Distinguish a movement along SRAS from a shift, and identify the determinants of SRAS: input prices, productivity, business taxes and regulation, supply shocks and expected inflation

Explain why long-run aggregate supply (LRAS) is vertical at potential (full-employment) output because all prices, including wages, are fully flexible in the long run

Explain how changes in the quantity or quality of resources, technology and institutions shift LRAS, and relate an LRAS shift to an outward shift of the PPC

Distinguish the short run from the long run in macroeconomics by whether nominal wages and other input prices have had time to adjust