Question

Choose the correct statement about the LAS curve. A. The LAS curve shifts rightward when the money wage rate falls. B. The LAS shifts rightward when the SAS curve shifts rightward and shifts leftward when the SAS curve shifts leftward. C. The LAS curve is vertical because potential GDP is independent of the price level. D. Along the LAS curve the money wage rate is constant and the real wage rate rises as the price level rises.

Answer 1

The correct answer is option C.

Step-by-step explanation:

The aggregate supply in the long run is vertical unlike the short run aggregate supply curve which is upward sloping.

The reason behind this shape of the supply curve is that the potential GDP is not affected by the changes in the price level. So even if there is an increase or decrease in the price level it remains the same.