Chapter 11: Problem 14

The classical economists' aggregate supply curve is vertical (LO4) a) both in the short run and in the long run b) in neither the short run nor the long run c) in the short run, but not in the long run d) in the long run, but not in the short run

Short Answer

Expert verified

The classical economists' aggregate supply curve is vertical in the long run, but not in the short run. The correct answer is (d) in the long run, but not in the short run.

Step by step solution

Reviewing the aggregate supply curve

The aggregate supply curve shows the total quantity of goods and services that firms are willing and able to produce at various price levels. Classical economists believed that in the long run, the economy is always operating at full employment, meaning that any changes in aggregate demand will only lead to changes in the price level without affecting the real output. Therefore, they assumed that the aggregate supply curve is vertical.

Identifying the role of the short-run aggregate supply curve

The short-run aggregate supply curve represents the relationship between the quantity of goods and services that firms are willing to produce and the price level, taking into consideration the current resources and technology. In the short run, firms may adjust their production levels in response to changes in demand, which means that the short-run aggregate supply curve can be upward-sloping, indicating a positive relationship between the price level and the quantity of goods and services produced.

Identifying the role of the long-run aggregate supply curve

The long-run aggregate supply curve is the relationship between the quantity of goods and services that firms are willing to produce and the price level when the economy is at full employment. Since classical economists believed that the economy is always operating at full employment in the long run, they assumed that the long-run aggregate supply curve is vertical, representing a constant level of real output regardless of changes in the price level.

Comparing the short-run and long-run aggregate supply curves

Now that we understand the differences between the short-run and long-run aggregate supply curves, we can determine which of the given options correctly describes the classical economists' aggregate supply curve as being vertical. Given that the long-run aggregate supply curve is vertical, as it represents the economy operating at full employment, and the short-run aggregate supply curve is upward-sloping, due to the potential for firms to adjust their production levels in response to changes in demand.

Choosing the correct answer

Based on the analysis above, we can conclude that the classical economists' aggregate supply curve is: a) both in the short run and in the long run - Incorrect, the short-run aggregate supply curve is upward-sloping. b) in neither the short run nor the long run - Incorrect, the long-run aggregate supply curve is vertical. c) in the short run, but not in the long run - Incorrect, the short-run aggregate supply curve is upward-sloping, not vertical. d) in the long run, but not in the short run - Correct, the long-run aggregate supply curve is vertical, but the short-run aggregate supply curve is not. So, the correct answer is (d) in the long run, but not in the short run.