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.
E)downward sloping at all ranges of output.

Question

Quizplus · Accepted Answer

According to classical economic theory, the long-run aggregate supply (LRAS) curve is vertical at the full-employment level of real GDP. This is because, in the long run, all inputs are assumed to be flexible, including labor, capital, and technology, and there is no trade-off between inflation and unemployment. Therefore, any increase in aggregate demand (AD) will only lead to a proportionate increase in the price level, without affecting real GDP. Hence, LRAS is a vertical line at the full-employment level of real GDP.

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