A vertical line showing an economy's potential output is called the ________, while a horizontal line showing the current rate of inflation is called the ________.
A)long-run aggregate supply; short-run aggregate supply
B)short-run aggregate supply; long-run aggregate supply
C)long-run aggregate supply; aggregate demand
D)short-run aggregate supply; aggregate demand

Question

Quizplus · Accepted Answer

The long-run aggregate supply (LRAS)line is vertical at the economy's potential output, and illustrates the economy's long-run productive capacity or potential output. The short-run aggregate supply (SRAS)line is a horizontal line that shows the current rate of inflation in the economy, as determined by past expectations of inflation and past pricing decisions.

A Vertical Line Showing an Economy's Potential Output Is Called