ECONOMICS
AGGREGATE SUPPLY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Yes, I understand this from the notes
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No, I don’t understand this from the notes
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No, I don’t understand this, as I have not read the notes
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None of the above
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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 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-4: -A vertical LRAS curve means that the level of aggregate supply (or potential GDP) will determine the economy’s real GDP, regardless of the level of aggregate demand.