When the long-run aggregate supply curve is drawn as a vertical line,the theorist is assuming that:
A) the economy tends to full employment in the long run.
B) the economy tends to produce stable prices in the long run.
C) the economy is stagnating at a low level of growth.
D) shifting aggregate demand can change the level of employment in the long run.

Question

Quizplus · Accepted Answer

When the long-run aggregate supply curve is drawn as a vertical line, it indicates that the economy tends to full employment in the long run. This means that in the long run, all resources in the economy are fully utilized, and there is no cyclical unemployment. The vertical line implies that changes in aggregate demand do not affect the output level, but only affect the price level. This assumption is based on the classical view that in the long run, prices and wages are flexible, and the economy self-adjusts to reach full employment.

When the Long-Run Aggregate Supply Curve Is Drawn as a Vertical