Why Is the Long-Run Aggregate Supply Curve Vertical at Potential

question 104

Multiple Choice

Why is the long-run aggregate supply curve vertical at potential real GDP?

• A) Resource costs adjust fully to price changes.
• B) Producers' profits are increasing at this point.
• C) Unemployment equals zero.
• D) There is a very strong relationship between further price changes and output produced.
• E) Production costs are at the lowest level possible.

---

Definitions:

Just-in-Time Manufacturing

A production methodology aimed at reducing flow times within production systems as well as response times from suppliers and to customers, by receiving goods only as they are needed in the production process.

Inventory

A complete list of items such as property, goods in stock, or the contents of a building.

Product Costs

Costs that are directly associated with the production of goods, including direct materials, direct labor, and manufacturing overhead.

Administrative Support

Operational support activities provided to help maintain the daily functioning of an organization or office.