Final answer:
Classical economists argue that the economy's long-term output is at its potential GDP, with a vertical LRAS curve signifying that changes in aggregate demand only affect prices, not output or unemployment.
Step-by-step explanation:
Classical economists argue that in the long run, the economy's output is determined by its potential GDP, which is the maximum quantity the economy can produce given full employment of existing labor, physical capital, technology, and institutions.
This perspective is reflected in the long run aggregate supply (LRAS) curve, which is vertical, indicating that in the long run, there's no relationship between the price level for output and real GDP. Because the LRAS is vertical, any increase in aggregate demand results in higher prices, but does not change the output or the natural rate of unemployment. This concept is rooted in Say's Law, which suggests that 'supply creates its own demand.'