Question

What shape is the long-run aggregate supply curve? Why does it have this shape?

a) Vertical; represents full employment in the long run
b) Horizontal; indicates constant production levels over time
c) Downward-sloping; reflects diminishing returns in the long run
d) Upward-sloping; illustrates increasing production capacity

Answer 1

The long-run aggregate supply curve is vertical and represents full employment in the long run.

Step-by-step explanation:

The long-run aggregate supply (LRAS) curve is vertical. It represents full employment in the long run. The LRAS curve shows the maximum level of output that an economy can produce with its existing levels of resources and technology. This level of output is also known as potential output.

The LRAS curve being vertical indicates that changes in aggregate demand only affect the price level, not the level of output. In the long run, an economy will always return to full employment.