Principles of Macroeconomics / Unit 8 MAC 0707 short lesson, about 20 seconds
Potential GDP and Long-Run Aggregate Supply
Captions available
The idea
Potential GDP is what the economy produces with its labor, capital and technology fully employed. Drawn against the price level it is a vertical line, the long-run aggregate supply curve.
In practice
At potential GDP, unemployment sits at the natural rate.
Where people slip
It is vertical because in the long run wages adjust to any price level, leaving one real wage and one level of employment.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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