The long-run aggregate supply curve occurs at the level of real GDP consistent with
A) individuals' tastes and preferences.
B) the natural rate of unemployment.
C) no inflation.
D) low levels of inflation.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve is the level of real GDP that can be produced when all resources are fully employed, including capital and labor, and there is no inflation. The natural rate of unemployment is the level of unemployment that is consistent with a stable rate of inflation over the long run. Therefore, the long-run aggregate supply curve occurs at the level of real GDP consistent with the natural rate of unemployment. Choice A is incorrect because individuals' tastes and preferences do not directly determine the level of real GDP in the long run. Choice C is incorrect because the long-run aggregate supply curve can occur at any level of inflation as long as it has stabilized over time. Choice D is incorrect because low levels of inflation do not necessarily determine the long-run aggregate supply curve.

The Long-Run Aggregate Supply Curve Occurs at the Level of Real