If the long-run aggregate supply curve is vertical, fiscal policy will have no effect on the price level.

Question

Quizplus · Accepted Answer

While the long-run aggregate supply curve being vertical indicates that fiscal policy will not affect the economy's output in the long run, it does not mean fiscal policy will have no effect on the price level. In fact, expansionary fiscal policy can lead to higher demand, which can push prices up, leading to inflation.

If the Long-Run Aggregate Supply Curve Is Vertical, Fiscal Policy