Definition
- Long-run aggregate supply
- Long-run aggregate supply is potential GDP, the output an economy can produce by fully employing its labour, physical capital and technology.
- Not to be confused with: Short-run aggregate supply
- Short-run aggregate supply is the total output firms will produce at each price level while the prices of inputs such as labour and energy stay fixed.
Test yourself
What is the difference between long-run aggregate supply and short-run aggregate supply?
SRAS moves with firms' costs and slopes up; LRAS moves only with capacity and is vertical.