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According to your text when the Long Run Aggregate Supply (LRAS) curve is vertical: a) We...

According to your text when the Long Run Aggregate Supply (LRAS) curve is vertical:
a) We are at Natural Unemployment
b) Full Employment has been reached
c) All of these
d) Rightward shifts in the Aggregate Demand Curve can only raise prices

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Answer #1

Answer - option (b) Full employment has been reached. In long run, the aggregate supply will be affected only by labor, capital and technology as other things except these is assumed to be used optimally. In full employment in the LRAS is vertical becuse this is the amount that is produced when price is fully adjusted. In short run as prices are sticky, producers react to the change in price level by changes their output. While in long run the prices are unstuck when they are fully adjusted to the economy and producers also produce efficient output with full employment of resources.

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