In the long run, the aggregate supply curve is vertical because the:
A)output becomes fully flexible.
B)prices become fixed in the long run.
C)prices remain sticky, and thus the economy cannot produce more than a certain fixed level of GDP.
D)quantity of output returns to potential GDP as market prices adjust and resource markets return to equilibrium.

Question

Quizplus · Accepted Answer

In the long run, prices and wages are flexible, and resource markets adjust to changes in demand and supply. As market prices adjust, firms produce at their potential GDP level, and the aggregate supply curve becomes vertical at potential GDP. Thus, the quantity of output returns to potential GDP as market prices adjust and resource markets return to equilibrium.

In the Long Run, the Aggregate Supply Curve Is Vertical