Refer to the diagram. Assume that nominal wages initially are set based on the price level P₂ and that the economy initially is operating at its full-employment level of output Q_f. In terms of this diagram, the long-run aggregate supply curve A) $\mathrm { AS } _ { 2 }$ B) is a vertical line extending from $Q _ { f }$ upward through e, b, and d. C) may be either A $A S _ { 1 } , A S _ { 2 } , \text { or } A S _ { 3 }$ depending on whether the price level is $P _ { 1 } , P _ { 2 } \text {, or } P _ { 3 }$ D) is a horizontal line extending from $P _ { 2 }$ rightward through f, b, and g.

Question

Quizplus · Accepted Answer

In the long run, the economy will adjust to its potential output level, which is represented by the vertical line extending from Qf upward through e, b, and d. This is because in the long run, changes in the price level will not affect the economy's potential output level.

Refer to the Diagram AS2\mathrm { AS } _ { 2 }AS2​

Refer to the Diagram $\mathrm { AS } _ { 2 }$