What does the long-run aggregate supply curve represent?

The long-run aggregate supply curve represents the economy's level of potential output, also known as full employment output or natural level of output. This concept is crucial in macroeconomics, as it reflects the maximum sustainable production capacity of an economy when all resources are utilized efficiently, without leading to inflationary pressures. In the long run, the aggregate supply is considered to be price inelastic, implying that it is unaffected by changes in price levels. Instead, it is determined primarily by factors such as technology, labor, capital, and resources available in the economy.

In contrast, the relationship between price levels and real output is captured by the short-run aggregate supply curve, which reacts to various economic shocks and price level changes. The impact of inflation on employment is more related to discussions on the Phillips curve, which addresses the trade-off between inflation and unemployment in the short run. Lastly, the trade-offs between spending and saving are part of other economic discussions, particularly relating to consumer behavior and the broader context of aggregate demand, rather than the long-run supply perspectives. Thus, the correct choice encapsulates the essence of the long-run aggregate supply curve as a representation of potential output.