Aggregate Demand and Aggregate Supply ❮ 111Changes in AS
In the short run, AS may fluctuate without changing the level of full employment. There
are some factors, however, that can cause a fundamental shift in the longrun AS curve
because they can change the level of output at full employment.
Short-Run Shifts
The most common factor that affects shortrun AS is an economywide change in input
(or factor) prices. Taxes, government policy, and shortterm political or natural events can
change the shortterm ability of a nation to supply goods and services.
• Input prices. If input prices fall economywide, the shortrun AS curve increases (shifting
to the right) without changing the level of full employment.
• Tax policy. Some taxes are aimed at producers rather than consumers. If these “supply
side taxes” are lowered, shortrun AS shifts to the right.
• Deregulation. In some cases, the regulation of industries can restrict their ability to pro
duce (for good reasons in many cases). If these regulations are lessened, the shortrun AS
likely increases.
• Political or environmental phenomena. For a nation as large as the United States, wars
and natural disasters can decrease the shortrun AS without permanently decreasing the
level of full employment. For a smaller nation or a large nation hit by an epic disaster,
this could be a permanent decrease in the ability to produce.
Long-Run Shifts
There are a few main factors that affect both longrun and shortrun AS and fundamentally
affect the level of full employment in a nation’s macroeconomy:
• Availability of resources. A larger labor force, larger stock of capital, or more widely avail
able natural resources can increase the level of full employment.
• Technology and productivity. Better technology raises the productivity of both capital and
labor. A more highly trained or educated populace increases the productivity of the labor
force. These factors increase longrun AS over time.
• Policy incentives. Different national policies like unemployment insurance provide incen
tives for a nation’s labor force to work. If policy provides large incentives to quickly find
a job, fullemployment real GDP rises. If government gives tax incentives to invest in
capital or technology, GDPf rises.
Figure 9.4SRASReal GDPPrice
LevelGDPu GDPf GDPcLRAS