The aggregate supply curve is vertical at the level of real GDP that corresponds to the natural rate of unemployment.

Question

Quizplus · Accepted Answer

The natural rate of unemployment refers to the level of unemployment that exists when the economy is producing at its potential output, or full employment. At this level of output, the aggregate supply curve is vertical because there are no available resources or factors of production that can be easily used to increase output beyond this point. Therefore, any attempts to increase output beyond the natural rate of unemployment will result in higher prices instead of higher real GDP.

The Aggregate Supply Curve Is Vertical at the Level of Real