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Why is the long-run aggregate-supply curve vertical?

Why is the long-run aggregate-supply curve vertical?

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Answer #1

In the long run classical model of economics is applicable. In the classical model we take the assumption that wages and prices are fully flexible and real wage adjusts instantly to ensure full employment all the time. Supply of output is always at the full employment level which implies a vertical aggregate supply curve.

In the long run when aggregate supply curve is vertical any change in aggregate demand is totally powerless to affect the output and employment. Here money is also neutral, changes in money supply can not influence output and real wage.

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