Refer to the graph above. If Q_f is potential GDP, wages and prices are flexible, then the long-run aggregate supply curve will be: A) AS₂ B) AS₁ C) A vertical line at Q_f D) A vertical line at Q₁

Question

Quizplus · Accepted Answer

The long-run aggregate supply (LRAS) curve represents the potential output of an economy when all factors of production are fully employed. Since we are given that Q_f is potential GDP, this means that the LRAS curve is a vertical line at Q_f. Flexible wages and prices mean that there are no long-term frictions in the economy that would cause the LRAS curve to slope. Therefore, the correct choice is C, a vertical line at Q_f.

Refer to the Graph Above