Why the economy's long-term growth potential is represented by a simple vertical line
The long-run aggregate supply curve provides a framework for understanding economic fluctuations. By mapping potential growth against demand, we can better analyze why economies deviate from their long-term averages.
The long-run aggregate supply curve is a vertical line that illustrates an economy's potential growth rate. While the United States economy maintains an average growth rate of approximately 3% annually, it frequently experiences fluctuations caused by real shocks.
These real shocks impact fundamental production factors, including technological advancements, wars, hurricanes, droughts, and shifts in oil supply. These events can trigger significant, long-lasting economic consequences, helping to explain why growth is rarely a perfectly smooth trajectory.
