LRAS
Long-run aggregate supply (LRAS) is typically vertical at the economy's potential output, representing the maximum sustainable output determined by available resources and technology. In the long run, the price level does not affect real output - it is determined by real factors only.
Real World
Japan's ageing population is shrinking its labour force, gradually shifting LRAS leftward. Despite decades of low interest rates and fiscal stimulus, potential output growth has remained near zero since the 2000s.
Exam Focus
State that LRAS is determined by real supply-side factors only — never say price level shifts LRAS.
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