Note: This is post #111 in a weekly video series on basic economics.
The long-run aggregate supply curve can show us an economy’s potential growth rate when all is going well. And combining the long-run aggregate supply curve with the aggregate demand curve can help us understand business fluctuations.
For example, while the U.S. economy grows at about 3 percent per year on average, it does tend to fluctuate quite a bit. What causes these fluctuations? As Alex Tabarrok explains in this video by Marginal Revolution University, one cause is “real shocks” that affect the fundamental factors of production. Droughts, changes to the oil supply, hurricanes, wars, technological changes, etc. can all have big and potentially far-reaching consequences.
(If you find the pace of the videos too slow, I’d recommend watching them at 1.5 to 2 times the speed. You can adjust the speed at which the video plays by clicking on “Settings” (the gear symbol) and changing “Speed” from normal to 1.25, 1.5 or 2.)
Click here to see other videos in the Introduction to Economics series.