00:01
So as the question points out, long run aggregate supply is indeed drawn as a vertical line.
00:06
The question is why.
00:08
Well, first of all, let's remember to label the axes.
00:11
Long run aggregate supply is a story about output versus prices.
00:16
So we should think about telling a story about why that is.
00:24
We're given a whole bunch of answers there.
00:27
But some of them are easier to rule out than others.
00:30
It looks like we have a is kenzian or obeys keynesian theory, right? b, the full employment when flexible, c, not flexible in long run, and d, many inputs fixed.
01:08
So let me group c &d together.
01:13
The joint thing with c &d is that in the long run, most things are flexible.
01:20
The long run is an extended period of time.
01:24
You're thinking, you know, like three to five years in general.
01:28
And that gives the economy time to react.
01:30
So that means things like wages can change, prices can change, interest rates can change, labor can change, right? over time, most inputs are not fixed.
01:42
So none of this is to me very compelling, right? the longer the time horizon you stretch your mind over, the more things are flexible, right? if you give me a week, i can't change much about my business or my economy, but if you give me three years, i can change a lot about my business or my economy, right? so in the long run, you should be thinking that most things are flexible.
02:10
And so stories about how wages, prices, interest rates, or inputs are not flexible is not consistent with the story of the long run.
02:18
Because the long run is all about adjustment is allowed to happen because you've got time...