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Answer :
Final answer:
The Long-Run Aggregate Supply curve (LRAS) is vertical at the full employment level of real GDP, signifying that in the long run, an economy's output is dependent on the state of technology and levels of labor and capital, with the economy reaching its potential output at full employment.
Explanation:
The Long-Run Aggregate Supply (LRAS) curve is a graphical representation that shows the relationship between the quantity of output that businesses are willing and able to produce and the inflation rate in the long term when all prices, comparative advantages, and other economic variables remain constant. According to economic theory, the LRAS curve is vertical at the full employment level of real GDP. This is because in the long run, an economy's economic output is limited by the levels of both labor and capital and the state of technology.
On the other hand, when the LRAS curve is described as being horizontal, it is usually referring to the short-run aggregate supply curve, not the long-run aggregate supply curve. In the short run, the aggregate supply curve is upward sloping because as price levels increase, producers are willing to produce more goods and services. But in the long run, with full employment, the economy reaches its potential output where unemployment rate is equal to its natural rate, and can't produce more without raising its potential output through factors like improved technology or an increased labor or capital stock.
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