The ʺlong-run aggregate supply curve,ʺ vertical at Y*,shows that
A)potential output will rise as prices rise.
B)potential output will fall as prices rise.
C)potential output is compatible with any price level.
D)potential output is compatible with one particular price level.
E)prices will always rise in the long run.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve is vertical at the potential output level (Y*), indicating that the potential output of an economy is not affected by changes in the price level. This means that the economy's capacity to produce goods and services in the long run is determined by factors such as technology, resources, and labor, rather than by the price level. Therefore, potential output is compatible with any price level.

The ʺLong-Run Aggregate Supply Curve,ʺ Vertical at Y*,shows That