2.3.3: Long Run AS

• Keynesian LRAS: Flat horizontal line which begins to slope upwards rapidly

  This LRAS suggests that price in the economy is fixed until resources are fully employed - The horizontal section is where resources are not employed fully
• Classical LRAS: A flat vertical line

  This LRAS suggests that output is fixed at each price level, and all factors of production are fully employed in the long run, meaning that changing AD only affects price level, and not real GDP
• Factors influencing LRAS:

  Better quality technology causes a shift outward or increase in LRAS

  Higher productivity increases LRAS

  Higher quality education and increase in skills increases LRAS

  Government regulation may limit how productive a firm could be, reducing LRAS. This is called red-tape

  If migration increases, the workforce is larger and LRAS can increase

  A more competitive market stimulates higher productivity and production, increasing LRAS