Figure 33-5. -Refer to Figure 33-5.The appearance of the long-run aggregate-supply (LRAS)curve A)is consistent with the concept of monetary neutrality. B)is consistent with the idea that point A represents a long-run equilibrium and a short-run equilibrium when the relevant short-run aggregate-supply curve is SRAS₁. C)indicates that Y₁ is the natural rate of output. D)All of the above are correct.

Question

Quizplus · Accepted Answer

The LRAS curve in Figure 33-5 is vertical, which is consistent with the concept of monetary neutrality as changes in the money supply only affect nominal variables in the long run. Point A is a long-run equilibrium where the aggregate demand (AD) curve intersects with the LRAS curve, and it is also a short-run equilibrium when the relevant short-run aggregate-supply curve is SRAS₁. This indicates that there are no cyclical unemployment or inflationary pressures in the long run. Finally, Y₁ is the natural rate of output, which is the level of output that the economy produces when all economic factors are used at their normal rates.

Figure 33-5. -Refer to Figure 33-5.The Appearance of the Long-Run Aggregate-Supply (LRAS)curve