The long-run aggregate supply curve is vertical at the level of output:

Question

BlackTom AI · Accepted Answer

To analyze the long-run aggregate supply (LRAS), we must recall that in the long run the economy's output is determined by real factors like capital, labor, technology, and institutions, not by the price level.

Option a: 'at which the inflation rate is zero.' This is not correct because the LRAS is not defined by the inflation rate being zero. In the long run, the economy can experience any inflation rate depending on monetary policy and demand conditions; zero inflation is not a defining feature of LRAS.

Option b: 'at a predetermined price level.' The LRAS is vertical with respect to the price level, meaning that the level of potential output is not fixed to a particular price level. The price level can vary, but LRAS remains at the same real output (the potential level).

Option c: 'at which unemployment is at its natural rate.' This is the key concept: in the long run, the economy operates at the natural rate of unemployment, and output is at potential (the full-employment level). The LRAS is vertical at that potential output, reflecting that unemployment is at its natural rate when economy is at full capacity.

Option d: 'determined by aggregate demand.' Aggregate demand determines short-run fluctuations in output and the price level, not the long-run level of output. In the long run, LRAS is determined by supply-side factors, while AD can shift the price level and cause temporary deviations, but not the long-run output level.

Overall, the reasoning eliminates the non-long-run determinants (inflation-zero condition, a fixed price level, and AD-driven long-run output) and highlights the natural-rate unemployment and potential output as the defining long-run characteristics of LRAS.

The long-run aggregate supply curve is vertical at the level of output:单项选择题

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