The long-run aggregate supply curve is vertical:
A)because the rate of inflation is steady in the long run.
B)Input prices eventually rise in response to changes in output prices.
C)because product prices always increase at a faster rate than resource prices.
D)only when the money supply increases at the same rate as real GDP.

Question

Quizplus · Accepted Answer

In the long run, input prices adjust to changes in output prices, so that the prices of inputs ultimately rise in response to higher prices for goods and services. This results in a vertical long-run aggregate supply curve, as the economy's potential level of output is determined by the available factors of production rather than the level of prices.

The Long-Run Aggregate Supply Curve Is Vertical