question archive What is the significance of the vertical long-run aggregate supply curve at the natural level of income in the AS-AD model?

What is the significance of the vertical long-run aggregate supply curve at the natural level of income in the AS-AD model?

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What is the significance of the vertical long-run aggregate supply curve at the natural level of income in the AS-AD model?

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In the long-run, economists believe that the economy produces at a full-employment level where all the input resources are used optimally. The output level at the full-employment level is known as potential output as an economy is unable to produce more than this level due to which the supply is perfectly inelastic that can be shown by the vertical supply curve. Therefore, the significance of vertical curve is any change in the income of the household has no impact on the supply of output in the economy.