If potential GDP is equal to $600 billion, what does the long-run aggregate supply curve look like?
A)It is a horizontal line at $600 billion of GDP.
B)It is a vertical line at a level of GDP below $600 billion.
C)It is a vertical line at $600 billion of GDP.
D)It is a vertical line at a level of GDP above $600 billion.
E)It is a positively sloped line beginning at the origin and passing through a GDP of $600 billion.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve is vertical at the potential GDP level, which in this case is $600 billion. This implies that the economy produces its maximum sustainable output in the long run at this level, independent of changes in the price level.

If Potential GDP Is Equal to $600 Billion, What Does