Question

How is long-term growth illustrated in an AD/AS model?

Short answer

In an AD/AS diagram, a progressive rightward shift of aggregate supply shows long-run economic growth due to productivity gains over time.

Step-by-step solution

Introduction

The aggregate demand–aggregate supply model, often known as the AD–AS model, is a macroeconomic model that examines the relationship between aggregate demand and aggregate supply to explain price level and production.

Step 2: 

The output (Real GDP) is measured on the X-axis, while the price level is measured on the Y-axis in the diagram above.

The LRAS (Long-run aggregate supply curve) is regarded vertical since there is little chance of production changing in the long run.

With technological advancement, the LRAS curve shifts rightward from $LRA{S}_0$to $LRA{S}_1$to $LRA{S}_2$, and equilibrium is achieved from $E_0$to $E_1$and subsequently to $E_2$.

Explanation

The price level fell from $P_0$to $P_1$to$P_2$

The SRAS curve changes leftward as input prices rise, from $E_0$to $E_{1Duetoincreasein}$input price The price level rose from $P_0$to $P_1$, but production fell from $Y_0$to $Y_1$.