Question

Why is the LRAS curve vertical?

Answer 1

The LRAS curve is vertical because  the quantity of real GDP supplied is  independent of the changes in the price level.

Explanation:

• The aggregate supply curve is the relationship between the overall price level and the total output which is a part of an economy that it wishes to produce.

• Prices are flexible in the long-run but sticky in the short-run.
• Intuitively, a country's GDP level is too large to be significantly affected by price changes.
• The Long-Run Aggregate Supply Curve(LRAS) is vertical on the graphic model which represents the market for final goods and services.
• The LRAS curve is also vertical at the full-employment level of output because this is the amount that would be produced once prices are fully meet its requirements.

• The Long-Run Aggregate Supply curve is vertical because the changes incurred does not affect the GDP'S long-run growth which contains resources, supplies and labor force.

Answer 2

LRAS curve is vertical due to the rate of inflation does not impact real GDP

Explanation:

The long-run aggregate supply curve (LRAS) is vertical because the rate of inflation does not impact real GDP's long-run determinants, which include supplies of labor, capital, and natural resources. It is simply applying the classical dichotomy and monetary neutrality.

The long-run aggregate supply curve at potential GDP is vertical, which is the amount of GDP reached when the economy operates in full employment. It is expected that GDP will always reach this level in the long run as the economy is driven by full employment, as it is a level that is realistic and long-term sustainable.