The long-run aggregate supply curve illustrates the
A) relationship of the price level and real GDP when the economy is at full employment.
B) relationship of the price level and real GDP when the economy is at zero unemployment.
C) amount of products producers offer at various prices when money wages and other resource prices are fixed.
D) surpluses, shortages and equilibrium level of GDP.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve shows the relationship between the price level and real GDP in the long run when the economy is at full employment. It assumes that all resources including labor are fully utilized, and the economy is producing at its potential output level. The curve is vertical at the potential output level indicating that changes in the price level do not affect the quantity of goods and services produced, but only the prices at which they are sold.

The Long-Run Aggregate Supply Curve Illustrates the