Question

In long term, what happens with the aggregate supply:Which is the right answer from the choices below?
a.the aggregate supply has a negative slope
b.the aggregate supply do not depend on the level of prices
c.real GDP is under potential GDP
d.all of them
e.none of them

Answer 1

b.the aggregate supply do not depend on the level of prices

In the long-run, the output an economy can produce depends only on the resources and technology that the country has available. This is the idea embodied in the long-run aggregate supply curve, which is vertical at the economy’s potential output. Once prices have had enough time to adjust, output should return to the economy’s potential output