Assuming prices and wages are fully flexible, the aggregate supply curve will be:
A) upward sloping, but not vertical.
B) vertical.
C) horizontal.
D) downward sloping.

Question

Quizplus · Accepted Answer

If prices and wages are fully flexible, the economy can always adjust to reach full employment level of output in the long run. Any increase in demand for goods and services will be met by an equal increase in the supply of goods and services without affecting the general price level. Therefore, the aggregate supply curve will be vertical at the potential output level, indicating that changes in aggregate demand will only affect the price level, not the level of output.

Assuming Prices and Wages Are Fully Flexible, the Aggregate Supply