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Draw a basic short run aggregate supply (SRAS), aggregate demand (AD) and long-run aggregate supply curve...

Draw a basic short run aggregate supply (SRAS), aggregate demand (AD) and long-run aggregate supply curve (LRAS) that shows the economy in long-run equilibrium.

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Answer #1

Aggregate demand is made up of consumption+investment, government spending+net exports

In the short run,wages are sticky so the wages of the workers do not change with the change in the price level so with the increase in the prices,the firms produce more which is why the SRAS is positive sloping from left to right.

In the long run,the wages of the workers change with the increase in the price level so when the prices increase,the production will not increase as the wages have also increased, which is why the LRAS is vertical.

At the point of equilibrium,the economy is at full level of employment.

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