Question

Which of the following statements is​ true?

A. In the long​ run, changes in the price level may either increase or decrease real GDP.
B. In the long​ run, increases in the price level result in an increase in real GDP.
C. In the long​ run, changes in the price level do not affect the level of real GDP.
D. In the long​ run, increases in the price level result in a decrease in real GDP.

Answer 1

The correct answer is option C.

Step-by-step explanation:

In the long run, the aggregate supply curve is a vertical line. It does not change with the change in price. This is because when the price of a product increases in the long run, the input prices increase as well. So the supply will remain constant.

This is why the level of real GDP will be unaffected by the price level. The long-run aggregate supply will increase because of technological change or an increase in resources.