The long-run aggregate supply curve is ___.

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Question restatement: The long-run aggregate supply curve is ___.

Option 1: downward sloping. In the long run, the aggregate supply curve is not downward sloping; that shape is typically associated with some short-run relationships where prices and wages are sticky. In the long run, prices adjust and output is determined by real factors like technology and resources, so this option is misleading.

Option 2: horizontal. A horizontal LRAS would imply that output could increase without any change in the price level, which does not reflect the long-run reality where the price level does not constrain or drive changes in potential output. This option conflates the short-run behavior with the long-run assumption and is therefore incorrect.

Option 3: vertical. This is the standard characterization of the long-run aggregate supply curve: it is vertical at the economy’s potential output, because in the long run output is determined by real factors—labor, capital, technology, and institutions—not by the price level. Changes in the price level do not affect the quantity of goods and services the economy can produce in the long run.

Option 4: upward sloping. An upward-sloping LRAS would imply that higher prices increase potential output, which contradicts the idea that potential output is fixed by real resources and technology in the long run. This makes the option incorrect.

Summary of reasoning: The LRAS is vertical because, in the long run, output is determined by real factors (technology, resources, institutions) rather than by the price level, which differentiates it from the short-run curves that can be sloped or horizontal depending on wage and price stickiness.

ECON 2002.01 AU2025 (21333) Midterm Exam 3 - Requires Respondus LockDown Browser

The long-run aggregate supply curve is ___.

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