Full-Employment or Potential GDP is the level of output that an economy can produce when all its resources are fully employed.
In this scenario, the long-run aggregate supply curve is vertical, indicating that the economy has reached its maximum sustainable output.
In the short run, the aggregate supply curve is elastic, meaning it can respond to changes in aggregate demand. It rises until all available resources are fully utilized. The level of output is determined by aggregate demand, which is influenced by factors such as consumption, investment, government spending, and net exports.
The current price level (PL1) and real output or GDP (Y1) are determined at the point where the aggregate demand curve intersects with the short-run aggregate supply curve.