ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In the long run, however, producers are limited to producing at potential GDP. For this reason, economists also refer to the AS curve as the short run aggregate supply curve, or SRAS curve. The vertical line at potential GDP may also be referred to as the long run aggregate supply curve, or LRAS curve.

Detailed explanation-2: -Key Features of the AD-AS model Two axes: a vertical axis labeled “Price level” or “PL” and a horizontal axis labeled “real GDP.”

Detailed explanation-3: -The long-run aggregate supply curve is a vertical line at the potential level of output. The intersection of the economy’s aggregate demand and long-run aggregate supply curves determines its equilibrium real GDP and price level in the long run.

Detailed explanation-4: -Growth and recession in the AD/AS model The vertical line representing potential GDP-the full-employment level of gross domestic product-gradually shifts to the right over time as well. You can see this effect in AD/AS diagram A below, which shows a pattern of economic growth over three years.

Detailed explanation-5: -The long-run aggregate supply is an economy’s production level (RGDP) when all available resources are used efficiently. It equals the highest level of production an economy can sustain.