The long-run aggregate supply curve illustrates the
A) relationship between the price level and real GDP when the economy is at full employment.
B) relationship between the price level and real GDP when the economy is at zero unemployment.
C) amount of products producers offer at various prices when money wages and other resource prices are fixed.
D) surpluses, shortages and equilibrium level of GDP.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve illustrates the relationship between the price level and real GDP when the economy is at full employment, not necessarily at zero unemployment, as it accounts for natural unemployment. It is vertical because it represents the economy's potential output independent of the price level, unlike the short-run aggregate supply curve which can slope upwards due to fixed wages and other costs.

The Long-Run Aggregate Supply Curve Illustrates the