4.3.8—SRAS and LRAS shape

Short-run aggregate supply (SRAS) is generally upward sloping because firms may face rising marginal costs as output approaches capacity. Long-run aggregate supply (LRAS) represents the economy’s sustainable productive capacity and is drawn according to the model used.

The short run contains fixed factors or sticky costs; the long run allows capital, labour and technology to adjust. Keep the chosen classical or Keynesian LRAS convention explicit.

An economy can raise output along SRAS when spare capacity exists, but a lasting expansion of productive capacity requires an outward LRAS shift.

LRAS is not simply SRAS made steeper, and the curve’s shape is a model assumption with an economic interpretation.