Question

What determines output in the Long Run? Explain using the Classical model, Keynesian model or Phillips curve.

Answer 1

In both the classical and the Keynesian model the long run output is more or less the same. That is determined by the available capital, labor force or the population and the technological advancement of the economy.

In the long run the economy will remain perfectly inelastic i.e. the change in the nominal value will not affect it. an increase in the real variables like technology or capital or population will shift the long run curve to the right and a decrease in these variable by accidents like earthquake etc will shift it the left.