Why is the long-run aggregate supply curve vertical at the full-employment level of GDP?

Question

Multiple choice question.

Because the short-run aggregate supply curve pushes output prices up, resulting in equilibrium

Because changes in input prices are offset by changes in demand, resulting in equilibrium

Because the demand for inputs creates a positive feedback loop

Because changes in input prices drop as demand for labor increases

Answer 1

The correct answer is:

Because changes in input prices are offset by changes in demand, resulting in equilibrium.

In the long run, the economy reaches a level of output that is determined by factors such as technology, resources, and the efficiency of production. At this point, the aggregate supply curve is vertical because it reflects the full-employment level of GDP, where all resources are fully utilized. Changes in aggregate demand will not affect the output in the long run; instead, they will only affect the price level.