In macroeconomics, classical economists argue that long
run growth can only be achieved by increasing supply. They base this argument on the
idea that the aggregate supply curve is vertical.
According
to classical economists, the AS curve is vertical. When you put this together with an
upward sloping aggregate demand curve, you can see why increased supply is necessary.
If you use these assumptions about the shape of the curve, an increase in AD would lead
only to an increase in price levels, not an increase in RGDP. By contrast, if you move
the vertical AS curve to the right, you get (all other things staying constant) an
increase in RGDP without an increase in price level.
So,
because long-run growth analysis believes that the AS curve is vertical, they focus on
supply rather than demand.
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