Which of the following is TRUE about the long-run aggregate supply curve?
A) It is vertical at the level of potential GDP.
B) It shows the relationship between the price level and real GDP when the economy is at full employment.
C) It does not shift in response to temporary changes in aggregate demand.
D) All of the above are true.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve is vertical at the level of potential GDP because it represents the economy's full employment level of output. It shows the relationship between the price level and real GDP when the economy is at full employment, meaning that all available resources are being utilized. It does not shift in response to temporary changes in aggregate demand because in the long run, prices and wages can adjust to changes in demand, leaving output unaffected and returning the economy to potential GDP.

Which of the Following Is TRUE About the Long-Run Aggregate