A vertical line showing the economy's potential output is called the
A) aggregate demand (ADI)curve.
B) long-run aggregate supply line.
C) inflation adjustment (IA)line.
D) expenditure line.
E) short-run equilibrium output linE.

Question

Quizplus · Accepted Answer

The long-run aggregate supply (LRAS) line represents the economy's potential output, which is the amount of goods and services the economy can produce when all resources are fully employed. It is a vertical line because it is not affected by changes in prices or output levels, but rather reflects the productive capacity of the economy in the long run. Option A is incorrect because the aggregate demand (AD) curve is a downward sloping curve that shows the relationship between the price level and the quantity of goods and services demanded in the economy, not the potential output. Option C and D are not relevant to the question. Option E refers to the short-run equilibrium output, which is the output level where the aggregate demand curve intersects the short-run aggregate supply curve, and does not represent the economy's potential output.

A Vertical Line Showing the Economy's Potential Output Is Called