Final answer:
The correct answer is that the economy's long-run AS curve assumes wages and other resource prices will eventually rise and fall to match changes in the price level, signifying that they are flexible and adjust in response to economic conditions over the long run.
Step-by-step explanation:
The economy's long-run Aggregate Supply (AS) curve makes certain assumptions about wages and resource prices. It posits that in the long run, resource prices, including wages, are fully flexible and adjust to match changes in the price level. This allows the long-run AS curve to be a vertical line at the potential output level of the economy as depicted in a long-run Phillips curve.
Given this understanding, we can analyze the options provided in the question. The correct answer is A) eventually rise and fall to match upward or downward changes in the price level. This states that in the long run, wages and resource prices adjust fully to the price level changes ensuring that the economy operates at its potential output, showing the flexibility of wages and prices in the neoclassical view.
Other theories, like rational expectations, agree that wages and prices quickly adjust to their neoclassical levels, while adaptive expectations suggest this adjustment takes longer, over a period of years. However, the neoclassical model remains centered on the concept that in the long run, resource prices will adjust accordingly to restore the economy to potential GDP and the natural rate of unemployment.