The SAS curve and the LAS curve
A) are parallel at potential GDP.
B) intersect at potential GDP.
C) are perpendicular to one another at potential GDP.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

The LAS (long-run aggregate supply) curve represents the level of output that can be produced in the long run when all resources, including capital and labor, are fully utilized. The SAS (short-run aggregate supply) curve represents the level of output that can be produced in the short run, taking into account price levels and the level of input utilization. At potential GDP, the economy is producing at the natural rate of unemployment, and both the LAS and SAS curves intersect at this point. Therefore, the correct answer is B.

The SAS Curve and the LAS Curve