The position of the long-run aggregate supply curve is determined by
A) the long-run aggregate demand curve.
B) the production possibilities curve.
C) the open economy effect.
D) the interest rate effect.

Question

Quizplus · Accepted Answer

The position of the long-run aggregate supply curve is determined by the production possibilities curve because it represents the economy's maximum potential output when all factors of production are used efficiently. In the long run, the aggregate supply curve is vertical at the full employment level of output, which corresponds with the production possibilities frontier. The other options (A, C, and D) do not determine the position of the long-run aggregate supply curve.

The Position of the Long-Run Aggregate Supply Curve Is Determined