Chapter 18, Problem 3MCQ

To determine

The correct option for horizontal intercept of the long-run aggregate supply curve

Answer to Problem 3MCQ

From the available options, the correct option is at potential output.

Explanation of Solution

As long-run aggregate supply curve represents the relationship between the price level and real gross domestic product in the long run period where all price would be considered flexible, therefore, the horizontal intercept of the long-run aggregate supply curve would be at potential output because the potential output is the quantity which is produced by considering the flexible of wages and prices in the long-run. Whereas, negative, at the origin, or equal to vertical intercept do not consider flexibility of wages and price levels in the long-run. And, long-run horizontal intercept cannot always be same with the short-run aggregate supply curve.

Therefore, all other options are incorrect and the correct option is c (at potential output.).

Economics Concept Introduction

Introduction: An aggregate supply curve represents the relationship between the price level (aggregated) and the quantity supplied (aggregated) in the economy where aggregate supply is the total quantity which is produced and sell by firms at different prices in the market.