3.4 Long-Run Aggregate Supply (LRAS)
LRAS is vertical at full-employment output because in the long run all wages and prices adjust; only more resources, capital, or better technology shift it.
Long-run aggregate supply is a vertical line at full-employment output (potential output) — the real GDP produced when unemployment sits at its natural rate. It is vertical because in the long run nominal wages and all prices fully adjust, so the price level has no effect on how much the economy can produce.
LRAS shifts for the same reasons the PPC shifts: more resources (labor force growth), more physical or human capital, and better technology. A rightward LRAS shift IS long-run economic growth; short-run demand booms do not move it.
On graphs, draw LRAS first and label the output where it meets the axis as full-employment output (Yf or Y*). Every gap identification in Unit 3 works by comparing current equilibrium output to that line.
Key terms for 3.4
Drag the curves yourself — the fastest way to make 3.4 stick.
Drawing LRAS upward-sloping or shifting it in response to price-level or AD changes. LRAS is vertical at potential output and moves only when resources, capital, or technology change — the same forces that shift the PPC.
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