According to neoclassical economists,what is true of the aggregate supply curve?
A)It is vertical because prices tend to be inflexible.
B)It is horizontal because prices tend to be fixed.
C)It is vertical at the capacity level of output in the economy.
D)It is upward-sloping since higher outputs will only be produced at higher price levels.
E)It is horizontal because supply creates its own demand.

Question

Quizplus · Accepted Answer

Neoclassical economists believe that in the long run, the aggregate supply curve is vertical at the capacity level of output in the economy, known as the potential output. This is because in the long run, all resources (including labor) are flexible and can be adjusted to their optimal use, and any increase in demand will only result in an increase in the price level, not the level of output.

According to Neoclassical Economists,what Is True of the Aggregate Supply