Long run aggregate supply (LRAS)

Keynesian LRAS

The Keynesian view suggests that the price level in the economy is fixed until resources are fully employed.

Spare capacity

The section of the economy where resources are not fully employed.

Inflationary

Referring to a situation where an increase in output leads to an increase in the price level.

Classical LRAS

In the long run, output is fixed at each level and all factors of production in the economy are fully employed.

LRAS curve

The long-run aggregate supply curve represents the normal capacity level of output of the economy.