Underlying economic growth is represented by a rightward shift in the long-run AS curve
Long-run aggregate supply (LRAS) shows the maximum output an economy can produce. When the economy's productive capacity permanently increases, economists show this as the LRAS curve shifting to the right.
Formula
LRAS shifts right → higher potential output (Yfe)
Real World
South Korea's economy grew its LRAS substantially between 1970 and 2000 through massive investment in education and technology, raising the country's productive capacity from a low-income to a high-income economy within a generation.
Exam Focus
Draw the LRAS shifting right and label the new full-employment output clearly; unlabelled diagrams lose application marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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