The AD/AS model is useful in predicting the effects of various shocks and policy changes on an easconomy. The model is based on
goods and services being exchanged in well-functioning markets. In general, however, markets are not always perfect. Consider how the model would change as a result of market imperfections. (Hint: Can the AS/LRAS shift when there are governmental controls?) How would the AD/AS model change if input prices, such as wages and raw material prices, were set by the government rather than in markets? If the government sets input prices, what long-run effect?
