In a diagram with the inflation rate on the vertical axis and the real growth rate on the horizontal axis,the long-run aggregate supply curve is:
A) upward sloping.
B) downward sloping.
C) a vertical line at the Solow growth rate.
D) a horizontal line at the expected inflation rate.

Question

Quizplus · Accepted Answer

The Solow growth rate represents the long-run potential growth rate of the economy, which is determined by factors such as technology and the labor force. In the long run, the economy will tend towards its potential level of real output, as represented by the vertical line at the Solow growth rate. This vertical line indicates that changes in the inflation rate will not affect the long-run level of real output, since the economy will adjust to eliminate any deviations from potential output.

In a Diagram with the Inflation Rate on the Vertical