After all adjustments have been made, the economy tends to return to which curve?

Enhance your understanding of aggregate demand and supply with our M43.1 test. Engage with expertly designed flashcards and detailed explanations. Ace your exam!

The economy tends to return to the long-run aggregate supply curve after all adjustments have been made. This curve represents the economy's potential output at full employment, where all resources are utilized efficiently, and reflects the level of output that can be sustained over the long term.

In the short run, fluctuations in aggregate demand can lead to variations in output and price levels, resulting in shifts along the short-run aggregate supply curve. However, as time progresses and the economy adjusts, factors such as wage and price adjustments, resource availability, and technological changes guide the economy back to the long-run equilibrium. The long-run aggregate supply curve is vertical, indicating that in the long run, the total output of an economy is determined by factors like productivity and resources rather than price levels.

Therefore, once all market adjustments occur and the economy stabilizes, it aligns with the long-run aggregate supply, which emphasizes sustainable growth rather than temporary shifts due to short-term economic fluctuations.

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