Refer to the Above Diagram

question 78

Multiple Choice

Refer to the above diagram.Assume that nominal wages initially are set on the basis of the price level P₂ and that the economy initially is operating at its full-employment level of output Q_f.In terms of this diagram, the long-run aggregate supply curve:

• A)is AS₂.
• B)is a vertical line extending from Q_f upward through e, b, and d.
• C)may be either AS₁, AS₂, or AS₃ depending on whether the price level is P₁, P₂, or P₃.
• D)is a horizontal line extending from P₂ rightward through f, b, and g.

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