Question : In the long run, the aggregate supply curve is:
Option 1: Vertical
Option 2: Horizontal
Option 3: Upward-sloping
Option 4: Downward-sloping
Correct Answer:
Vertical
Solution : The correct answer is (a) Vertical.
The long-run aggregate supply (LRAS) curve is vertical, indicating that the level of aggregate output is determined by the economy's productive capacity and potential output when all resources are fully utilized. In the long run, changes in the price level do not affect the level of output.
The vertical shape of the LRAS curve implies that as the price level changes, there is no change in the economy's ability to produce goods and services in the long run. This is because in the long run, prices and wages adjust to changes in the overall price level, ensuring that the economy operates at its potential output level.
