We distinguish between the long-run aggregate supply curve and the short-run aggregate supply curve. In the long run
A) the aggregate supply curve is horizontal while in the short run it is upward sloping.
B) real GDP equals potential GDP.
C) the price level is constant but in the short run it fluctuates.
D) technology is fixed but not in the short run.

Question

Quizplus · Accepted Answer

In the long run, the economy would have adjusted to its potential output level (i.e. natural rate of unemployment), and as a result, real GDP would equal potential GDP. Factors such as technology and capital stock are assumed to be fixed in the long run. Therefore, the long-run aggregate supply curve is vertical at the potential output level, while the short-run aggregate supply curve is upward sloping. The price level is assumed to be flexible in both the short and long-run, but in the short run, it can fluctuate due to changes in aggregate demand, while in the long run, it is constant at the expected price level.

We Distinguish Between the Long-Run Aggregate Supply Curve and the Short-Run