Long-Run Aggregate Supply (LRAS)
Definition
LRAS represents the total amount of goods and services an economy can produce when all resources are fully utilized, and prices have adjusted to their long-run equilibrium levels. It is a vertical line on the aggregate supply curve.
Analogy
Think of LRAS as the maximum capacity of a factory that operates at full efficiency with all its machines running smoothly. Just like how the factory can only produce a certain amount of goods at its maximum capacity, LRAS shows the maximum output an economy can achieve in the long run.
Related terms
Short-Run Aggregate Supply (SRAS): SRAS represents the total amount of goods and services an economy can produce in the short run when some resources are underutilized or not fully adjusted to equilibrium prices.
Aggregate Demand (AD): AD refers to the total demand for goods and services in an economy at different price levels.
Potential Output: Potential output is the level of real GDP an economy can sustainably produce when all resources are fully employed. It is another term used interchangeably with LRAS.
"Long-Run Aggregate Supply (LRAS)" appears in:
Study guides (4)
Additional resources (2)
Practice Questions (7)
Which of the following best describes the concept of Long-Run Aggregate Supply (LRAS)?
What factors can cause a shift in the Long-Run Aggregate Supply (LRAS) curve?
Which of the following scenarios would most likely cause a rightward shift in the Long-Run Aggregate Supply (LRAS) curve?
What is the primary factor that determines the position of the Long-Run Aggregate Supply (LRAS) curve?
What happens to the Long-Run Aggregate Supply (LRAS) curve if there is a larger workforce?
Which of the following scenarios would most likely cause a leftward shift in the Long-Run Aggregate Supply (LRAS) curve?
What is the impact of supply-side economic policies on the productive capacity and long-run aggregate supply (LRAS)?
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