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Long Run and Short Run Aggregate Supply

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Suppose a large oil reserve is discovered in South Dakota. Does this affect the AS curve for the long-run, short-run, or both? Explain.

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Solution Summary

The effect of an in increase in factors of production on the AS curve.

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Hello, I will provide you with full explanation so that you formulate your own answers to the questions accordingly. Concerning referencing, please refer to my remarks at the end.

Answer:
The new oil reserve is an increase in the natural resources of the country (a factor of production) which is a determinant of potential GDP.
As potential GDP is the maximum production the country can achieve (while keeping inflation under ...

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