In the AD/AS model, the potential output line:
A) is vertical and shows that potential output is not determined by the price level.
B) is horizontal and shows that potential output is sensitive to changes in the price level.
C) shows how aggregate output changes when the price level changes.
D) slopes up and to the right.

Question

Quizplus · Accepted Answer

The potential output line is vertical because it represents the level of output that an economy can produce at a full employment level, which is not affected by changes in the price level. This indicates that potential output is determined by factors like technology and resources, not by the price level.

In the AD/AS Model, the Potential Output Line