The Keynesian Long-run Aggregate Supply Curve

The Keynesian Long-run Aggregate Supply Curve

The diagram above shows the long-run aggregate supply curve that was created by John Maynard Keynes. Keynes believed that the long-run aggregate supply curve (LRAS) has three main segments through which a market will go through over a period of time. Keynes believed that at the beginning, the market will start out with an increased level of output with no increase in prices since there is lots of spare capacity in the economy. Once the market moves through the early parts of the LRAS, the spare capacity will then be used up and output will go up at the same time. As a consequence, the costs of the factors of production will rise. After the middle section in the LRAS, employment will be full since output cannot be increased since all the factors of production are being utilized.

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3 Responses to The Keynesian Long-run Aggregate Supply Curve

  1. bjyechan7 says:

    Wow that’s a very confusing diagram you have there. I’m wondering where you learned about that type of graph.

  2. Pingback: The equilibrium interest rate in the money market:? | Best Saving Rates

  3. Justin says:

    This reminds me of the agricultural market in Florida. Originally land was very cheap and abundant, but as Florida became more populated, or “spare capacity” was used up, the price of farm land increased. Although the quantity of agricultural output continues to increase due to new technology, so we are still at the curve.

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