Long-Run Aggregate Supply (LRAS)
| English | Chinese | Pinyin |
|---|---|---|
| long-run aggregate supply | 长期总供给 | cháng qī zǒng gōng jǐ |
| full-employment output | 充分就业产出 | chōng fèn jiù yè chǎn chū |
| frictional | 摩擦性失业 | mó cā xìng shī yè |
| structural | 结构性失业 | jié gòu xìng shī yè |
| natural rate of unemployment | 自然失业率 | zì rán shī yè lǜ |
| potential GDP | 潜在GDP | qián zài GDP |
| fully flexible | 完全灵活 | wán quán líng huó |
| capacity | 生产能力 | shēng chǎn néng lì |
| capital stock | 资本存量 | zī běn cún liàng |
| technology | 技术 | jì shù |
| economic growth | 经济增长 | jīng jì zēng zhǎng |
The economy's real ceiling
- Contracts don't stay fixed forever — given time, every wage and price adjusts.
- In that long run, the sticky-wage story disappears.
- Aggregate supply then looks completely different.
- It becomes the long-run aggregate supply 长期总供给 (LRAS) curve — and it is vertical.
Vertical at full-employment output
- LRAS is a vertical line at the economy's full-employment output 充分就业产出.
- This is not zero unemployment — only frictional 摩擦性失业 and structural 结构性失业 remain, at the natural rate of unemployment 自然失业率.
- Its position marks the economy's potential GDP 潜在GDP — the maximum sustainable output.
The AD-AS model
LRAS is vertical at potential output, because in the long run wages and prices are flexible. Economic growth shifts it right.
The long-run aggregate supply curve is:
In the long run output depends on real resources, not the price level, so LRAS is vertical.
LRAS sits at the economy's maximum sustainable output, called potential ______.
Potential GDP is the output at full employment, at the natural rate of unemployment.
Full-employment output means zero unemployment.
Some frictional and structural unemployment always remain — the natural rate.
Why it's independent of the price level
- In the long run, wages and prices are fully flexible 完全灵活.
- If the price level doubles, wages eventually double too, so firms have no lasting reason to change output.
- Real output settles back to what the economy's real resources can make.
- That does not depend on how high the price tags are — so LRAS is vertical.
LRAS is independent of the price level because, in the long run:
If the price level doubles, wages eventually double too, leaving real output unchanged.
Growth shifts LRAS right
- LRAS moves only when real productive capacity 生产能力 changes.
- More or better resources, a bigger capital stock 资本存量, or new technology 技术 all shift LRAS right.
- That rightward shift is long-run economic growth 经济增长.
- Worked idea. A decade of investment in schools and factories raises potential output — LRAS shifts right.
A country invests heavily in education and new factories for a decade. LRAS:
More capital and a more skilled workforce raise potential output, shifting LRAS right.
Select all that shift LRAS to the right.
Real resources and technology grow potential output; a price-level change does not move LRAS.
LRAS is vertical at full-employment output (potential GDP), because wages and prices are fully flexible in the long run — real output depends on real resources, not the price level. Economic growth shifts LRAS right.