The graph shows a short-run aggregate supply curve. Please move the endpoints to turn the curve into a long-run aggregate supply curve.
Real GDP
Long-run aggregate supply has this characteristic because:
the federal government makes up the difference between GDP and potential output.
the ability of the economy to produce determines long-run output. This ability is independent of price levels.
consumers adjust their decisions based on average price.
Average price level
The Correct Answer and Explanation is:
To transform a Short-Run Aggregate Supply (SRAS) curve into a Long-Run Aggregate Supply (LRAS) curve on a graph, you must move the endpoints so the curve becomes a vertical line positioned at the economy’s potential (or full-employment) level of Real GDP. Unlike the SRAS, which slopes upward, the LRAS curve is vertical, reflecting that in the long run, output is determined by productive capacity, not price levels.
✅ Correct Answer:
The ability of the economy to produce determines long-run output. This ability is independent of price levels.
💡 Explanation
In macroeconomics, the Long-Run Aggregate Supply (LRAS) curve represents the total output an economy can produce when all resources (labor, capital, etc.) are fully employed and prices and wages have fully adjusted to any changes in the economy. It is shown as a vertical line on the AD-AS model because, in the long run, Real GDP is not affected by changes in the price level.
This vertical shape reflects the idea that, while prices may influence output in the short run (due to sticky wages or contracts), they have no effect on output in the long run. Instead, long-run output is determined solely by factors such as technology, labor force, capital stock, and institutional efficiency—not by changes in the average price level.
For example, even if prices rise or fall, a nation’s ability to produce goods and services—its potential GDP—does not change unless there is a shift in resources or productivity. Hence, the LRAS curve remains fixed at that potential level unless influenced by long-run supply-side factors (like technological advances or demographic shifts).
In contrast, the SRAS curve slopes upward because prices do affect output in the short run due to market rigidities. Over time, however, wages and input costs adjust, and the economy returns to its full-employment output—thus aligning with the LRAS.
So, when modifying a graph, you replace the upward-sloping SRAS with a vertical LRAS line at the economy’s potential Real GDP.
