The Long-Run Aggregate Supply Curve is vertical because:

Question

a. The price of luxury goods will increase as incomes increase.
b. Real output and prices have an inverse relationship.
c. Taxes paid to the government are spent by the government.
d. The amount of resources and productivity levels are independent of the price level.

Answer 1

The correct answer is:

d. The amount of resources and productivity levels are independent of the price level.

The Long-Run Aggregate Supply (LRAS) curve is vertical because it represents the economy's maximum sustainable output level (full employment output) determined by the quantity and quality of resources (labor, capital, technology) available in the economy. In the long run, changes in the price level do not affect real output; instead, output is determined by factors such as resource availability and productivity, which remain constant over the long run.