Long Run Aggregate Supply (LRAS)

Short Run Vs Long Run

• The long run is a period of time when all input prices are variable

• Characterized by fully-flexible wages and prices

• Producers have no incentive to change the level of output because input prices change in response to changes in the price level

PPC

• When the economy is operating at full employment, which means the actual unemployment rate is equal to the natural rate of unemployment, the Long Run Aggregate Supply (LRAS) is represented as a vertical line at the potential output level.

• The ppc and LRAS are intertwined by the idea that the production possibilities curve (PPC) illustrates the maximum potential output of an economy, while the LRAS signifies the economy's long-term capacity to produce goods and services at full employment.

• The PPC and the LRAS are functions of the NRU, not the actual rate of unemployment, which would not shift either of them.