AP Macroeconomics AMSCO Guided Notes
3.4: Long-Run Aggregate Supply (LRAS)
AP Macroeconomics Guided Notes
AMSCO 3.4 - Long-Run Aggregate Supply (LRAS)
Essential Questions
- How does the flexibility of the long run affect pricing and production costs for businesses?
I. The Long-Run Aggregate Supply Curve
1. What is long-run aggregate supply and how does it differ from the short run in terms of cost flexibility?
2. Why is the LRAS curve vertical rather than downward-sloping like the SRAS curve?
A. Full-Employment, or Potential, Output
1. What is full-employment output (potential output) and what does it represent?
2. What is the output gap and how did it change between 2000 and 2013?
3. What three long-run factors cause the LRAS curve to shift rightward over time?
II. Short-Run to Long-Run Curve Shifts
1. When can an economy be on both the SRAS and LRAS curves simultaneously?
2. What happens to nominal wages and the SRAS curve when real GDP exceeds potential output?
3. How does the SRAS curve shift when real GDP falls short of potential output, and what causes this shift?
III. LRAS and the Production Possibilities Curve
1. How are the LRAS curve and the production possibilities curve related?
Key Terms
long-run aggregate supply (LRAS)
long-run aggregate supply curve
full-employment output
potential output
output gap