How is long-run economic growth shown on an AD-AS graph?

In the AD-AS model, the long-run aggregate supply curve is a vertical line at full-employment, or potential, real GDP. Long-run economic growth means potential output itself rises, so the graph shows it as LRAS shifting to the right. Short-run aggregate supply usually shifts right with it, because the same gain in resources or productivity lowers production costs in the short run too. The new long-run equilibrium sits at a higher real GDP. If aggregate demand stayed put, the price level would fall; in practice demand usually grows as well, so real GDP rises without the price level necessarily falling.

That is how to read the common multiple-choice item that shows several graphs with arrows on the AD and AS curves and asks which best illustrates long-run economic growth. Choose the graph in which the aggregate supply curve, whether it is labeled LRAS or simply AS, shifts right. If the graph separates the two curves, the answer is the one where LRAS shifts right; a rightward shift of SRAS alone can be a temporary drop in input costs rather than growth. A graph where AD and AS both shift right also shows growth, and the supply shift is the part that makes it growth. Reject a graph where only AD shifts right, and reject any graph where AS shifts left, which shows a negative supply shock or a loss of productive capacity.

A rightward AD shift on its own raises real GDP only in the short run. Output moves above potential and opens an inflationary gap. Over time nominal wages and other input prices rise, SRAS shifts left, and the economy returns to the same potential output at a higher price level. Real GDP ends where it started, so spending can move the economy around its capacity but cannot raise that capacity on its own. Likewise, an AD increase that closes a recessionary gap is a recovery toward potential, not growth of potential. The aggregate demand vs long-run aggregate supply comparison covers this distinction.

What shifts LRAS right is anything that raises the economy's capacity to produce: more or better capital, a larger labor force, more human capital through education and training, new technology, and more natural resources. The same events push the production possibilities curve outward, so an outward PPC shift and a rightward LRAS shift are two pictures of one change. Policies such as support for research, infrastructure, or education count as growth policies because of their effect on LRAS; any boost they give to AD along the way is a short-run effect.

To practice, shift the curves on the AD-AS graph and the PPC graph, read SRAS vs LRAS for why the long-run curve is vertical, and see economic growth explained for how growth is measured and what causes it. The growth rate itself can be worked out with the economic growth rate calculator.