A Level explanation — Keynesian view of LRAS

The Keynesian LRAS is drawn in three sections. On the left, the curve is horizontal: this is the spare capacity region, where unemployed resources mean higher demand can raise real GDP (Y) with little effect on the price level (PL).

In the middle, the curve slopes upward — the bottleneck region. As the economy approaches capacity, firms struggle to expand output quickly; higher AD mainly raises prices. Equilibrium E gives Y₁ and PL₁.

On the right, LRAS is vertical at full employment output: no further sustainable increase in Y is possible, so extra demand is inflationary.

What Keynesian economists believe: markets can stay below full employment for long periods; aggregate demand drives output and jobs in the short run, so fiscal and monetary policy can close output gaps — especially when spare capacity exists. In exams, contrast this with the classical vertical LRAS and use AD shifts to analyse recession recovery vs demand-pull inflation.