Chapter 4R, Problem 11MCQ

To determine

What is true about the long-run aggregate supply curve?

Explanation of Solution

The long-run aggregate supply curve is vertical in nature. This is because as we move from the short run to the long run, the assumption of rigidity of wages is relaxed and the economy produces a fixed level of output at all the price levels. Hence, the aggregate supply curve is vertical in the long run.

The aggregate supply curve can neither be horizontal nor upward or downward-sloping as it is vertical.

  

Thus, option ‘b’ is the correct option.

At the production potential, the long-term aggregate supply curve is a vertical line. Hence, option (a) is incorrect.

Because of the sticky pricing, policymakers can take advantage of how changes in the money supply affect investment, employment, output, and consumption in the real economy. Hence, option (c) is incorrect.

The long-term aggregate supply curve is a vertical line. Hence, option (d) is incorrect.

The potential GDP point is where the curve intersects the horizontal axis. Hence, option (e) is incorrect.