The position of the long-run aggregate supply curve shows the economy's:
A) potential growth rate given by the real factors of production.
B) long-run inflation rate.
C) expected inflation rate.
D) rate of money growth plus velocity growth.

Question

Quizplus · Accepted Answer

The position of the long-run aggregate supply curve represents the economy's potential growth rate given by the real factors of production, such as labor, capital, and technology. It shows the maximum sustainable level of output that can be produced in the long run without causing inflation. The LRAS curve is vertical at the potential output level, indicating that changes in aggregate demand only result in changes in the price level, not the real output. Therefore, option A is the correct answer.

The Position of the Long-Run Aggregate Supply Curve Shows the Economy's