"The long-run aggregate supply curve is vertical because in the long run, A. changes in the price level affect potential GDP via other variables, such as the size of the labor force, capital stock, and technology. B. changes in the size of the labor force, capital stock, and technology affect the price level but not potential GDP. C. changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology. D. the price level does not change, but potential GDP changes its value."

Question

02-03-2020
Business

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"The long-run aggregate supply curve is vertical because in the long run, A. changes in the price level affect potential GDP via other variables, such as the size of the labor force, capital stock, and technology. B. changes in the size of the labor force, capital stock, and technology affect the price level but not potential GDP. C. changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology. D. the price level does not change, but potential GDP changes its value."

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jacknjill jacknjill · Answer 1 · 2020-03-08T07:23:11+01:00

The long-run aggregate supply curve is vertical because in the long run "changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology".

Option: C

Explanation:

A curve showing the correlation among price level and real GDP that would be provided if all prices, including nominal wages, were completely flexible. Prices that adjust along the LRAS, but production cannot be distributed because that output represents the full employment output.

The LRAS is vertical because the future production that an economy will achieve in the long run is not linked to the level of prices. There are only two things that are important for potential output like the amount and performance of resources of a nation, and the way certain resources can be combined to generate aggregate output.