If the economy is in long run equilibrium at full employment, the level of overall economic activity:
A) is positively affected by changes in the price level.
B) is only affected by changes in aggregate demand.
C) is not affected by changes in the price level.
D) is negatively affected by changes in the price level.

Question

Quizplus · Accepted Answer

Long run equilibrium at full employment means that the economy is producing at its potential and there is no cyclical unemployment. In this situation, changes in the price level do not affect the overall level of economic activity because the economy is already at its maximum sustainable output. This is represented by the vertical portion of the long run aggregate supply curve. Therefore, the correct answer is C.

If the Economy Is in Long Run Equilibrium at Full