Exhibit 10A-2 Macro AD-AS Model

In Exhibit 10A-2, the long-run aggregate supply curve represents:
A) potential real GDP output for this economy.
B) that the economy is experiencing zero inflation.
C) that the economy is experiencing a recessionary gap.
D) the level of real GDP where the unemployment rate is zero.

Question

​ Exhibit 10A-2 Macro AD-AS Model

In Exhibit 10A-2, the long-run aggregate supply curve represents:
A) ​potential real GDP output for this economy. 
B) that the economy is experiencing zero inflation. 
C) ​that the economy is experiencing a recessionary gap. 
D) ​the level of real GDP where the unemployment rate is zero.

Quizplus · Accepted Answer

The long-run aggregate supply curve represents the potential real GDP output for the economy because in the long-run, all inputs including capital, labor, and technology can be adjusted to their optimal levels, and thus the economy can produce at its maximum potential.

​ Exhibit 10A-2 Macro AD-AS Model

Exhibit 10A-2 Macro AD-AS Model