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Long-Run Aggregate Supply

The Long-Run Aggregate Supply (LAS) represents the relationship between the price level and output in the long-run. It differs from the Short-Run Aggregate Supply (SAS) in that no input prices are assumed to be constant. Thus, LAS is a representation of potential output.

Since the LAS is potential output it is shifted by the factors which affect potential output, such as: available resources, capital, entrepreneurship, and technological developments. Where LAS is affects whether policies are focused on short-run or long-run issues.

The LAS curve is vertical because it shows potential output and when this happens all prices, even input prices, rise when a rise in price level occurs.


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