2.3.3: Long Run AS

• LRAS: Total output when all factors of production and prices are variable
• The classical LRAS curve is vertical, as in the long run, level of real output is not related to price
• The LRAS curve assumes that there is no spare capacity
• Factor shifting the LRAS curve: Change in quantity and quality of the factors of production
• Factor shifting the LRAS curve: Increased size and skill of the workforce
• Factor shifting the LRAS curve: Increased quantity of natural resources
• Factor shifting the LRAS curve: More investment and improvements in technology
• Factor shifting the LRAS curve: More competition
• Classical economists believe markets will adjust on their own, whereas Keynesian economists believe governments must intervene to manage demand