The Long-Run Aggregate Supply Curve Is Vertical Because

question 38

Multiple Choice

The long-run aggregate supply curve is vertical because

• A)potential GDP is independent of the price level.
• B)actual output can never exceed, even temporarily, the output rate implied by the economy's long-run aggregate supply curve.
• C)a vertical long-run aggregate supply curve indicates the maximum output rate that an economy can ever reach.
• D)a vertical long-run supply curve indicates that an increase in aggregate demand will lead to a larger real GDP, but not a larger nominal GDP.
• E)potential GDP never changes.

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Definitions:

Prices

The monetary value assigned to goods and services, determining the terms of exchange in a market.

Bundles

Combinations of goods and services offered together as a single package, often at a discounted price.

Weak Axiom

A principle in consumer theory that if a consumer prefers bundle A over bundle B when both are affordable, they will not choose B over A when income or prices change, holding everything else constant.

Strong Axiom

Often refers to the strong axiom of revealed preference in economics, a principle used to infer a consumer's complete preference ordering over goods.