The long-run aggregate supply curve is
A)a vertical line through the non-inflationary rate of output.
B)a vertical line through the current level of output.
C)a vertical line through the natural rate level of output.
D)a horizontal line through the current level of output.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve is a vertical line through the natural rate level of output, which is the level of output that can be sustained without increasing inflation in the long run. This is because in the long run, all input prices, including wages, adjust fully to changes in the overall price level, so firms are able to produce at their full, efficient capacity without experiencing cost-push inflation.

The Long-Run Aggregate Supply Curve Is