Long-Run Aggregate Supply (LRAS) Curve

Definition

The Long-Run Aggregate Supply curve represents the relationship between the quantity of real GDP supplied by all firms in an economy and the price level when wages, prices, and resource costs fully adjust to changes in the overall price level. It shows the maximum potential output an economy can produce in the long run.

Related terms

Short-Run Aggregate Supply (SRAS) Curve: Represents the relationship between quantity of real GDP supplied and the price level when some input prices remain fixed, assuming imperfect flexibility.

Aggregate Demand (AD): The total spending on final goods and services within an economy at different price levels over a specific period.

Potential Output: The highest sustainable level of real GDP an economy can achieve without causing excessive inflation.