3.2.5—Long-run shifts in aggregate supply
- Syllabus
- First assessment 2022
- Objective
- 3.2.5
- Level
- HL
LRAS shifts when productive capacity changes
A rightward LRAS (or Keynesian AS) shift means the economy can produce more at full potential.
Capacity can expand through more or better labour and capital, technology, process efficiency, natural resources or institutions that improve finance and competition. A loss of these capacities shifts it left.
Training that raises worker productivity can move potential output right. A new competition rule may also expand capacity by making entry and investment easier.
Name the capacity channel before drawing the shift, then ask whether the change affects potential output or only current production costs.
A temporary energy-cost change shifts SRAS; it does not automatically change the economy’s long-run productive capacity.