-Refer to the above diagram.Assume that nominal wages initially are set on the basis of the price level P₂ and that the economy initially is operating at its full-employment level of output Q_f.In terms of this diagram,the long-run aggregate supply curve: A) is AS₂. B) is a vertical line extending from Q_f upward through e,b,and d. C) may be either AS₁,AS₂,or AS₃ depending on whether the price level is P₁,P₂,or P₃. D) is a horizontal line extending from P₂ rightward through f,b,and g.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve is a vertical line extending from Qf upward through e, b, and d. This is because in the long run, the economy will always produce at its full-employment level of output, regardless of the price level.

-Refer to the Above Diagram