In the long-run, if the economy is operating at the full employment level, the equilibrium level of real GDP is determined solely by the:
A)level of unemployment in the economy.
B)rate of inflation in the economy.
C)real interest rate in the economy.
D)aggregate supply curve of the economy.
E)aggregate demand curve of the economy.

Question

Quizplus · Accepted Answer

If the economy is operating at full employment, it means that all factors of production (including labor) are being utilized, thus the economy is producing at its maximum capacity. At this point, the aggregate supply curve becomes vertical indicating that changes in aggregate demand will only affect the price level and not real GDP. Therefore, the equilibrium level of real GDP is determined solely by the aggregate supply curve.

In the Long-Run, If the Economy Is Operating at the Full