Why Is the Long-Run Aggregate Supply Curve Vertical? Explain the Factors

question 4

Essay

Why is the long-run aggregate supply curve vertical? Explain the factors that determine the position of the long-run aggregate supply curve.

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Definitions:

Book Income Tax Expense

The accounting expense associated with income taxes payable, calculated based on the book income.

Valuation Allowance

A reserve created to account for future tax benefits which may not be realized due to insufficient future taxable income.

Subjective Assessment

An evaluation based on personal judgment rather than quantifiable evidence, often used in scenarios where objective measures are difficult to apply.

Deferred Tax Assets

Future tax benefits obtained due to temporary differences between the book value and tax basis of assets.