MOD-2.F—Define (using graphs as appropriate) the long-run aggregate supply (LRAS) curve

Define (using graphs as appropriate) the long-run aggregate supply (LRAS) curve.

• The LRAS curve corresponds to the production possibilities curve (PPC) because they both represent maximum sustainable capacity. Maximum sustainable capacity is the total output an economic system will produce over a set period of time if all resources are fully employed.
• The LRAS curve is vertical at the full-employment level of output because in the long run wages and prices fully adjust. [See LO MOD-2.I]
• Enduring understanding MOD-2: Economists use the aggregate demand–aggregate supply model to represent the relationship between the price level and aggregate output in an economy and to illustrate how output, employment, and the price level respond to macroeconomic shocks.