The long- run aggregate supply curve is vertical because
A) at full employment prices are stable.
B) potential GDP is independent of the price level.
C) there is no cyclical inflation.
D) the money wage rate increases faster than the price level.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve is vertical because potential GDP is independent of the price level. In the long run, factors of production such as capital, labor, and technology are all assumed to be fully utilized and the economy operates at its potential level of output regardless of the price level. Therefore, changes in the price level will not affect potential GDP and the long-run aggregate supply curve remains vertical.

The Long- Run Aggregate Supply Curve Is Vertical Because