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LRAS
Shows total planned output when both prices and average wage rates can change. It is also a measure of a country’s potential output
Why is the LRAS curve vertical?
In the long-run, it is more difficult for firms to increase their output once they have reached maximum capacity.
LRAS and PPF
Both highlight whether the factors of production are fully employed
LRAS and output gaps
Production below the LRAS curve highlights a negative output gap and therefore an underemployment of resources
LRAS and full capacity in the economy
Full capacity means that all factors of production are being used effectively, full capacity is also shown by the LRAS curve
What determines the LRAS curve?
Technology
Productivity
Worker attitudes
Entrepreneurs and enterprise
Factor mobility
Economic incentives
