Long-run aggregate supply curve in the classical model
A) is the level of real GDP corresponding to 100 percent labor force participation.
B) is the level of real GDP corresponding to the natural rate of unemployment.
C) is a downward sloping line.
D) is determined by the capital stock of the economy, not the labor force.

Question

Quizplus · Accepted Answer

In the classical model, the long-run aggregate supply curve is determined by the natural rate of unemployment, which is the rate at which the economy operates at its potential output level. Therefore, choice B is correct. Choice A is incorrect because labor force participation is not necessarily at 100% at the potential output level. Choice C is incorrect because the long-run aggregate supply curve is a vertical line, indicating that the potential output is fixed in the long run. Choice D is incorrect because the long-run aggregate supply curve is determined by both the capital stock and the labor force.

Long-Run Aggregate Supply Curve in the Classical Model