How does long-run growth analysis justify its focus on supply?This is for Macroeconomics

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pohnpei397 eNotes educator| Certified Educator

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.