The long-run aggregate supply curve
A) shows that at higher prices, potential real Gross Domestic Product (GDP) increases.
B) slopes up and to the right.
C) shows that long-run aggregate supply equals potential real Gross Domestic Product (GDP).
D) is very sensitive to changes in the price level.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve shows the level of potential real Gross Domestic Product (GDP) that can be produced in the economy over the long run. This level of potential GDP is determined by factors such as the available resources, technology, and institutional arrangements. Therefore, the long-run aggregate supply curve represents the level of output that the economy can produce in the long run at full employment, which is independent of the price level. As a result, the long-run aggregate supply curve is vertical or almost vertical, indicating that price changes do not affect the level of potential output that the economy can produce in the long run.

The Long-Run Aggregate Supply Curve