The curve that is sometimes called the "long-run aggregate supply curve" (vertical Y*)relates the aggregate price level to real GDP
A)in the short run.
B)when wages are in adjustment but prices are unstable.
C)when national income is at less than potential income.
D)when technology is allowed to change.
E)after factor prices have fully adjusted to eliminate output gaps.

Question

Quizplus · Accepted Answer

The "long-run aggregate supply curve" (vertical Y*) reflects the economy at potential output, meaning there are no output gaps where national income is less than potential income. This occurs after factor prices have fully adjusted to eliminate any output gaps, resulting in a level of real GDP that is sustainable in the long run. Therefore, the curve relates the aggregate price level to real GDP after factor prices have fully adjusted.

The Curve That Is Sometimes Called the "Long-Run Aggregate Supply