The aggregate supply curve in the neoclassical model

The aggregate supply curve determines the level of output in the long run. In the short run, the economy may be below or above potential output, but it will eventually return to potential output over time. This is because the forces that determine potential output, such as the quantity of capital, labor, and technology, are constantly changing. As these factors change, the economy will adjust to produce the new level of potential output.

Here is a table that summarizes the key points about the aggregate supply curve in the neoclassical model:

In the neoclassical model, the aggregate supply curve is vertical at the level of potential output. This means that the economy cannot produce more than potential output in the long run, no matter how high the price level is.

The aggregate supply curve is drawn vertical because, in the neoclassical model, the factors that determine output are not affected by the price level. These factors include the quantity of capital, labor, and technology. In the long run, these factors are fixed, so the quantity of output that can be produced is also fixed.