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Why is long-run aggregate supply vertical at full-employment output, and what moves it?

Topic 3.4 Long-Run Aggregate Supply: explain why the long-run aggregate supply curve is vertical at full-employment (potential) output, and identify what shifts it.

A focused answer to AP Macroeconomics Topic 3.4, covering the vertical long-run aggregate supply curve, full-employment and potential output, the natural rate of unemployment, the link to the production possibilities curve, and the determinants of long-run growth, with a worked question.

Generated by Claude Opus 4.811 min answerUpdated 2026-06-04

Reviewed by: AI editorial process; not yet individually human-reviewed

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What this topic is asking
Why LRAS is vertical
What shifts LRAS
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What this topic is asking

Topic 3.4 completes the supply side of the AD-AS model with the long-run aggregate supply (LRAS) curve. The College Board wants you to explain why LRAS is vertical at full-employment output and to know what moves it. LRAS is the bridge to economic growth (Unit 5) and connects back to the production possibilities curve from Unit 1.

Why LRAS is vertical

In the short run, sticky wages make SRAS slope upward. In the long run, all input prices adjust fully. If the price level doubles, wages and all other input prices eventually double too, so firms have no incentive to change output: real production returns to potential. Because output is the same whatever the price level, LRAS is a vertical line.

What shifts LRAS

Because LRAS is set by the economy's productive capacity, it moves only when that capacity changes. These are exactly the determinants of long-run economic growth and the outward shift of the production possibilities curve.

LRAS shifts right (more potential output) when:

the labor force grows or becomes more skilled (education, training),
the capital stock grows (more factories, machines, infrastructure),
more natural resources become available,
technology or productivity improves.

LRAS shifts left when productive capacity is destroyed, for example by war, natural disaster, or a permanent fall in the labor force. A change in aggregate demand or in the price level does not shift LRAS.

Long-run growth on the AD-AS graph

A country invests heavily in education and new capital over a decade. Show the effect on long-run aggregate supply and full-employment output.

step 1 Draw long-run equilibrium

Plot PL on the vertical axis and real GDP on the horizontal axis. Draw a vertical $LRAS_1$ at full-employment output $Y_{f1}$ , with AD and SRAS crossing at the same point ( $PL_1$ , $Y_{f1}$ ).

step 2 Identify the change

Better-educated workers and a larger capital stock raise the economy's productive capacity. This is a determinant of LRAS, not of AD.

step 3 Shift LRAS right

Move long-run aggregate supply right, from $LRAS_1$ to $LRAS_2$ , at a higher output $Y_{f2}$ . (SRAS shifts right with it.)

step 4 Interpret the result

Full-employment (potential) output has risen from $Y_{f1}$ to $Y_{f2}$ : the economy can now sustainably produce more. This is long-run economic growth, the same idea as an outward shift of the production possibilities curve.

Try this

Q1. Why does a change in the price level not change long-run output? [2 points]

Cue. In the long run all prices and wages adjust proportionally, so real output stays at potential; LRAS is vertical.

Q2. Give two determinants that would shift LRAS to the right. [2 points]

Cue. Any two of: a larger or more skilled labor force, more capital, more natural resources, improved technology or productivity.

Exam-style practice questions

Practice questions written in the style of College Board exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.

AP 2018 (style)1 marksMultiple choice. The long-run aggregate supply curve is vertical because, in the long run, (A) wages are sticky. (B) output is determined by the price level. (C) output is determined by the economy's resources and technology, not the price level. (D) aggregate demand is fixed. (E) the price level cannot change.

Show worked answer →

The answer is (C). In the long run all input prices, including wages, are fully flexible, so changes in the price level do not affect real output. Output is fixed at the full-employment (potential) level, determined by the quantity and quality of resources and technology. That is why LRAS is vertical.

(A) explains the upward-sloping short-run curve, not the long run. (B) reverses the logic. (D) and (E) are false; aggregate demand and the price level both change.

AP 2021 (style)4 marksFree response. (a) Draw a correctly labelled graph showing aggregate demand, short-run aggregate supply, and long-run aggregate supply in long-run equilibrium. (b) Explain why long-run aggregate supply is vertical. (c) The economy experiences a large increase in its capital stock and labor force. Show the effect on long-run aggregate supply. (d) Identify what has happened to full-employment output.

Show worked answer →

A 4-point graphing FRQ.

(a) Graph (1 point): PL on the vertical axis, real GDP on the horizontal axis; vertical LRAS at full-employment output $Y_f$ , downward-sloping AD, and upward-sloping SRAS, all three intersecting at the same point ( $PL_1$ , $Y_f$ ).

(b) Vertical LRAS (1 point): in the long run all prices and wages are flexible, so output depends only on resources and technology, not the price level; output is fixed at potential.

(d) Full-employment output (1 point): full-employment (potential) output has increased; the economy can sustainably produce more, that is, long-run economic growth.

Markers reward all three curves meeting at one point, a vertical LRAS, and a rightward shift.

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Sources & how we know this

AP Macroeconomics Course and Exam Description — College Board (2023)