Figure 23-2. -Refer to Figure 23-2.The appearance of the long-run aggregate-supply (LRAS)curve A) is inconsistent with the concept of monetary neutrality. B) is consistent with the idea that point A represents a long-run equilibrium but not a short-run equilibrium when the relevant short-run aggregate-supply curve is AS₁. C) indicates that Y₁ is the natural rate of output. D) All of the above are correct.

Question

Quizplus · Accepted Answer

The LRAS curve in the figure appears to be vertical, indicating that the economy is producing at its potential output level (Y₁) in the long run. This suggests that there is no trade-off between inflation and output in the long run, and the economy operates at its natural rate of output (potential output level). Therefore, choice C is correct. Choices A and B are incorrect because the LRAS curve's appearance is consistent with the concept of monetary neutrality, and point A represents a long-run equilibrium as well as a short-run equilibrium when the relevant short-run aggregate-supply curve is AS₁.

Figure 23-2. -Refer to Figure 23-2.The Appearance of the Long-Run Aggregate-Supply (LRAS)curve