In the simple macro model of this chapter, the long-run AS-curve is
A)horizontal
B)vertical
C)upward-sloping
D)assumed to be completely price elastic
E)either B or C, depending on how fast prices adjust

Question

Quizplus · Accepted Answer

The long-run AS-curve is vertical because in the long run, all input prices (such as wages) are flexible and adjust to changes in the price level. This means that changes in the price level do not affect real GDP in the long run, and the only effect is a change in the overall price level. Therefore, the long-run AS-curve is vertical at the full-employment level of output.

In the Simple Macro Model of This Chapter, the Long-Run