3. Which of the following describe a long-run aggregate supply curve.
a. A vertical line.
b. The price level is fixed.
c. Output prices are flexible, but input prices are fixed.
d. A horizontal line.
e. An upsloping curve.
f. Output is fixed.

Question

3. Which of the following describe a long-run aggregate supply curve. 
a.     A vertical line.
b.     The price level is fixed.
c.     Output prices are flexible, but input prices are fixed.
d.     A horizontal line.
e.     An upsloping curve.
f.     Output is fixed.

BlackTom AI · Accepted Answer

Think through what the long-run aggregate supply (LRAS) curve represents in classical and modern macro models. In the long run, output is determined by productive capacity (labor, capital, technology) and is not influenced by the price level.

Option A: A vertical line. This aligns with the standard depiction of LRAS, where, at full employment or potential output, changes in the price level do not change real GDP. The curve has zero slope in the real-output dimension, reflecting output fixed by capacity.

Option B: The price level is fixed. In the long run, the price level is not fixed; it can move and interact with wages, prices, and expectations. If the price level were fixed, we wouldn’t be illustrating LRAS dynamics properly. This statement contradicts the LRAS concept.

Option C: Output prices are flexible, but input prices are fixed. This describes a particular misfit between prices and wages that is not characteristic of the long-run aggregate supply curve. LRAS assumes both input and output prices are flexible in the long run so that the economy returns to potential output regardless of price level changes.

Option D: A horizontal line. A horizontal LRAS would imply that output responds to the price level, which is the opposite of the long-run view. Short-run AS can be horizontal or upward-sloping, but LRAS is vertical, not horizontal.

Option E: An upsloping curve. An upward-sloping LRAS would suggest higher price levels raise real output, which contradicts the notion that in the long run the economy operates at its potential regardless of inflation. This is a misunderstanding of LRAS.

Option F: Output is fixed. In the long run, the economy’s potential output is fixed by resources and technology, so real GDP is not driven by the price level. This statement captures the essence of the LRAS property that output is determined by capacity and remains fixed as price level changes in the long run.

Overall, options that correctly describe LRAS are those that reflect a vertical relationship between price level and real output, and the idea that, in the long run, output is determined by potential capacity rather than by price movements. The incorrect options mix up short-run dynamics, price flexibility assumptions, or misstate the relationship between prices and output in the long run.

ECNM1115.32542.202530 Review Questions: Chapter 12 Aggregate Demand and Aggregate Supply Quiz

3. Which of the following describe a long-run aggregate supply curve. a. A vertical line. b. The price level is fixed. c. Output prices are flexible, but input prices are fixed. d. A horizontal line. e. An upsloping curve. f. Output is fixed.

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