Question

Long-run aggregate supply is equal to

1. short-run aggregate demand.

2. short-run aggregate supply

3. inflation minus unemployment.

4. potential output.

Answer 1

In Long run all resources are fully employment i.e. we only have natural rate of unemployment. Output produced at a full employment level is what we called Potential output. Thus In Long Aggregate supply curve is vertical and Aggregate supply equals potential output or full employment output. Hence option (4) is the correct answer.

There is no relation between short-run aggregate demand. and Long aggregate supply has no direct relation to short run aggregate supply or inflation and(2) and (3) are also incorrcet hence

Hence, the correct answer (4) Potential Output.