LRAS
Long-run aggregate supply — productive capacity.
Long-run aggregate supply
Key definitions
Classical LRAS
Vertical at full employment output Yfe.
Keynesian LRAS
Inverted L — elastic, bottleneck, inelastic sections.
Yfe
Full employment level of real output.
Productive capacity
Maximum sustainable output with current technology.
Trend growth
Long-run average growth rate of potential GDP.
PPF link
LRAS shifts mirror outward PPF shifts.
Wage flexibility (Classical)
Wages adjust to restore full employment.
Sticky wages (Keynesian)
Wages may not fall — unemployment can persist.
Bottleneck capacity
Keynesian region where only prices rise.
Key concepts
Classical: AD changes affect prices in LR, not output.
Keynesian: spare capacity allows AD to raise real output.
Relevant tips
- Diagram backlog: vertical Classical LRAS and Keynesian inverted L.
- Compare SR vs LR effects of AD shock.