When resource prices are negotiable,the long-run aggregate supply curve is represented by:
A)an upward-sloping line
B)a downward-sloping line
C)a vertical line at potential output.
D)a horizontal line at the actual price level.
E)a horizontal line at the expected price level.

Question

Quizplus · Accepted Answer

In the long run, the aggregate supply curve is vertical at the economy's potential output, reflecting the idea that in the long run, the total output is determined by the economy's resources, technology, and institutions, and is not affected by the price level. This is because, in the long run, resource prices, including wages, can adjust to changes in the price level, neutralizing the effect of price changes on the quantity of goods and services supplied.

When Resource Prices Are Negotiable,the Long-Run Aggregate Supply Curve Is