Which of the following is true about the long- run aggregate supply curve?
A) It is vertical at the level of potential GDP.
B) It does not shift in response to temporary changes in aggregate demand.
C) It shows the relationship between the price level and real GDP when wages and other costs are at an equilibrium level.
D) All of the above are true.

Question

Quizplus · Accepted Answer

A) The long-run aggregate supply curve is vertical at the level of potential GDP because it represents an economy in which all inputs are at their natural and equilibrium levels.
B) The long-run aggregate supply curve represents the economy's potential output, so it does not shift in response to temporary changes in aggregate demand, which only affect short-run output levels.
C) The long-run aggregate supply curve shows the relationship between the price level and real GDP when all input costs have adjusted to their equilibrium levels. Therefore, it reflects the relationship between aggregate demand and supply when markets have had time to adjust, and all inputs are in equilibrium.

Which of the Following Is True About the Long- Run