According to the policy irrelevance proposition, real Gross Domestic Product (GDP) is determined by

Question

Quizplus · Accepted Answer

The policy irrelevance proposition suggests that changes in the level of government spending and taxes have no effect on the long-run level of real GDP. According to this proposition, real GDP in the long-run is determined by the economy's productive capacity as shown by its long-run aggregate supply curve. Therefore, choice B, the economy's long-run aggregate supply curve, is the correct answer.

According to the Policy Irrelevance Proposition, Real Gross Domestic Product