The long-run aggregate supply curve is the relationship between the quantity of real GDP supplied and ___________when ___________ .
A) the price level; real GDP equals potential GDP
B) the price level; real GDP equals nominal GDP
C) real GDP demanded; the price level does not change
D) real GDP demanded; the wage rate is constant

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve is the relationship between the quantity of real GDP supplied and the price level when real GDP equals potential GDP. This is because in the long run, all resources are fully utilized and there are no short-term constraints on production, so real GDP will always approach the level of potential GDP. Therefore, the long-run aggregate supply curve is a vertical line at potential GDP, indicating that changes in the price level will not affect the quantity of real GDP supplied in the long run.

The Long-Run Aggregate Supply Curve Is the Relationship Between the Quantity