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One of your classmates is convinced that the actual amount of output that corresponds to the...

  1. One of your classmates is convinced that the actual amount of output that corresponds to the long-run aggregate supply curve is fixed. What will you say to convince him/her that the opposite is the case?
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Answer #1

It is not the actual amount of output but the potential amount of output corresponds to the long run aggregate supply curve is fixed. An economy may or may not be using all its resources fully at a particular point of time. When actual output is less than the potential output, it indicates that the resources are not utilised fully that the actual amount of output is not actually fixed but can vary depending upon the extent to which the resources are utilised. On the other side the potential output, which is the level of output produced when all the resources are fully employed, is always fixed along the long run aggregate supply curve.

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