The Long-Run Aggregate Supply Curve Is Vertical at $10 Trillion

question 14

Multiple Choice

The long-run aggregate supply curve is vertical at $10 trillion, but the short-run aggregate supply curve intersects the aggregate demand curve at $12 trillion. From this, we know that

• A)the economy is operating below full capacity in the short run, and will have to adjust by hiring more workers, thus reducing unemployment.
• B)the price level is too high. The only way long-run equilibrium can be restored is to lower the price level.
• C)adjustments will have to occur so that the long-run aggregate supply equals $12 trillion.
• D)adjustments will have to occur so that the short-run aggregate supply intersects the aggregate demand curve at $10 trillion.

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