The vertical long-run aggregate supply curve satisfies the classical dichotomy because the natural rate of output does not depend on:
A) the labor supply.
B) the supply of capital.
C) the money supply.
D) technology.

Question

Quizplus · Accepted Answer

The vertical long-run aggregate supply curve represents the level of output that the economy is capable of producing in the long run, given its resources and technology. It is independent of the money supply because changes in the money supply only lead to changes in prices and nominal variables, but not in real variables such as output or employment. The natural rate of output, which is the level of output produced when all markets are in equilibrium, is determined by factors such as technology, the supply of labor and capital, and institutions, but not by changes in the money supply.

The Vertical Long-Run Aggregate Supply Curve Satisfies the Classical Dichotomy