In the long run, the classical aggregate supply curve is usually shown as
Correct answer: B. Vertical at potential output
- A. Horizontal at the current price
- B. Vertical at potential output
- C. Downward sloping from output
- D. Upward sloping from consumption
Explanation
Long-run aggregate supply is vertical at potential output because real output is determined by resources, technology and institutions rather than the price level. A horizontal or upward-sloping curve is commonly used for short-run analysis.
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About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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