The aggregate supply curve in the long run is vertical because wages and other input prices respond completely to a change in price level.

Question

Quizplus · Accepted Answer

In the long run, wages and other input prices are flexible and fully adjust to changes in the price level. This means that if there is an increase in the price level, wages and input prices will adjust upwards, leading to an increase in production costs and a decrease in firms' profits. Ultimately, this will result in a decrease in the quantity supplied, bringing the economy back to its long-run equilibrium where the aggregate supply curve is vertical. Thus, the correct answer is A.

The Aggregate Supply Curve in the Long Run Is Vertical