The long-run aggregate supply curve
A)shows that at higher prices,potential output increases.
B)slopes up and to the right.
C)shows that long-run aggregate supply equals potential output.
D)s very sensitive to changes in the price level.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve shows the potential output of an economy in the long run, assuming that all factors of production are fully utilized. Therefore, the long-run aggregate supply curve shows that the level of output is independent of the price level and long-run aggregate supply equals potential output. Option A is incorrect as the long-run aggregate supply curve is vertical, meaning that potential output remains constant regardless of price level. Option B is incorrect as the long-run aggregate supply curve does not slope up and to the right; instead, it is a vertical line. Option D is also incorrect as the long-run aggregate supply curve is not sensitive to changes in the price level, as potential output is determined by factors such as labor and capital, which do not change in the long run due to changes in price level.

The Long-Run Aggregate Supply Curve