Question

QUESTION 35 The long-run aggregate supply curve touches the horizontal axis at a value that equals Aggregate autonomous spending. O planned investment expenditure, o unplanned investment. O potential GDP.

Answer 1

Answer 35

The correct answer is (d) potential GDP

In the long it is considered that that there is no cyclical unemployment i.e. economy always produces at its full employment level. Hence In the long run at any price level economy always produces full employment level of output and as Full employment level of output is also known as potential level of output. Thus Long run Aggregate supply curve is vertical and intersects horizontal axis at Potential level of output or potential level of GDP(Note we use Country's output and GDP are the same thing).

Hence, the correct answer is (d) potential GDP