The long-run aggregate supply curve is vertical:
A)because the rate of inflation is steady in the long run.
B)because resource prices eventually catch up with product prices.
C)because product prices always increase at a faster rate than resource prices.
D)only when the money supply increases at the same rate as real GDP.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve is vertical because in the long run, resource prices eventually catch up with product prices. This means that any increase in product prices due to an increase in demand or decrease in supply will eventually lead to an increase in resource prices, which will offset the initial increase in product prices. Therefore, the overall level of output in the economy remains unchanged in the long run, resulting in a vertical long-run aggregate supply curve.

The Long-Run Aggregate Supply Curve Is Vertical