ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The LRAS is vertical because, in the long-run, the potential output an economy can produce isn’t related to the price level. There are only two things that matter for potential output: 1) the quantity and the quality of a country’s resources, and 2) how it can combine those resources to produce aggregate output.

Detailed explanation-2: -Answer and Explanation: The long-run aggregate supply curve refers to an association between the amount of real output supplied and the price level when the real output matches the potential output (full employment).

Detailed explanation-3: -The curve become vertical after full employment level of output indicating the maximum amount of output which can be produced in the economy generating the respective national income.

Detailed explanation-4: -The long-run aggregate supply curve is vertical because: wages and prices are only sticky in the short run, not in the long run. In the long run, prices and wages will adjust and output will be equal to potential output, so the LRAS is vertical.

Detailed explanation-5: -The Classical model shows the aggregate supply curve as vertical because this model holds that the economy is at its full employment level. That means that even if demand increases, firms can’t hire new workers and expand because everyone is already working.