The Keynesian Long-run Aggregate Supply Curve
April 27, 2010 3 Comments
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.