The long-run aggregate supply curve is vertical because:

The long-run aggregate supply curve is vertical because:

• A. Because the price level affects output in the long run.
• B. Because the economy's money supply determines output.
• C. Because technology levels fix production in the long run.
• D. Because in the long run, aggregate output is determined by potential output and prices are fully flexible.

Answer: (D)

In the long run, how much the economy can produce is set by its capacity—potential output—determined by available resources, technology, and institutions. Prices and wages are flexible, so the price level can adjust without changing real output. That combination means changes in the overall price level don’t move real GDP in the long run, so the long-run aggregate supply curve is vertical at potential output. If the price level by itself could change long-run output, or if the money supply alone dictated production, or if technology alone fixed how much could be produced, those ideas would imply a sloped or differently shaped long-run curve. The standard view is that real output in the long run is anchored by potential output, with prices fully adjusting to clear markets.

In the long run, how much the economy can produce is set by its capacity—potential output—determined by available resources, technology, and institutions. Prices and wages are flexible, so the price level can adjust without changing real output. That combination means changes in the overall price level don’t move real GDP in the long run, so the long-run aggregate supply curve is vertical at potential output.

If the price level by itself could change long-run output, or if the money supply alone dictated production, or if technology alone fixed how much could be produced, those ideas would imply a sloped or differently shaped long-run curve. The standard view is that real output in the long run is anchored by potential output, with prices fully adjusting to clear markets.