The pre-Keynesian or classical economic theory viewed the long-run aggregate supply curve for the economy to be:
A) horizontal at the full-employment level of real GDP.
B) positively sloped at the full-employment level of real GDP.
C) vertical at the full-employment level of real GDP.
D) backward bending at the full-employment level of real GDP.

Question

Quizplus · Accepted Answer

The pre-Keynesian or classical economic theory viewed the long-run aggregate supply curve to be vertical at the full-employment level of real GDP, indicating that changes in aggregate demand will only affect the price level but not the level of output. This is due to the assumption that all resources are fully employed at the full-employment level of real GDP, and any increase in demand will only lead to an increase in prices as firms compete for the limited resources available.

The Pre-Keynesian or Classical Economic Theory Viewed the Long-Run Aggregate