Why is the long-run aggregate supply curve a vertical line?
A) At that level of real GDP, the unemployment rate is 0 percent.
B) At that level of real GDP, the inflation rate is 0 percent.
C) At that level of real GDP, the production costs are at their lowest level.
D) At that level of real GDP, production costs have fully adjusted to price changes.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve is a vertical line because it represents the level of real GDP that can be sustained in the long run, given that production costs have fully adjusted to price changes. This means that there are no supply-side constraints that limit production, and businesses can produce as much as they want without triggering inflation. Thus, the economy can operate at full employment without generating price pressures, resulting in a vertical long-run aggregate supply curve. Option A is incorrect because the economy can operate at full employment at multiple levels of real GDP, depending on the level of aggregate demand. Option B is incorrect because while low inflation is a characteristic of the long run, it is not the reason why the long-run aggregate supply curve is vertical. Option C is incorrect because production costs can be lower or higher than the level associated with the vertical long-run aggregate supply curve at different levels of output.

Why Is the Long-Run Aggregate Supply Curve a Vertical Line