New Enroll for RBI, PFRDA & NABARD Intro Class! April 18 at 9:15 PM

    Question

    In the Classical model, what is the shape of the

    Aggregate Supply (AS) curve in the long run, and why?
    A Upward sloping, because prices and wages are flexible. Correct Answer Incorrect Answer
    B Vertical, because output is determined by factors of production. Correct Answer Incorrect Answer
    C Downward sloping, because higher prices lead to higher demand Correct Answer Incorrect Answer
    D Horizontal, because prices do not affect output. Correct Answer Incorrect Answer

    Solution

    In the Classical model, the long-run AS curve is vertical. This is because the Classical economists believe that output is determined by the supply of factors of production (labor, capital, and technology) and not by the price level. Prices and wages are flexible, and the economy is always at full employment. Therefore, changes in the price level do not affect the total output in the long run.

    Practice Next