Explain why the short-run supply curve is not vertical, but the ...

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Explain why the short-run supply curve is not vertical, but the long-run aggregate supply curve is vertical.

Question 2

_____ are elements of fiscal policy that automatically change in value as national income changes.
 a. Statistical discrepancies
  b. Exchange rates
  c. Budget deficits
  d. Automatic stabilizers
  e. Supply-side shocks

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Answer to Question 1

Over the short run, suppliers are willing to supply more real output if the price level is increasing. This is due to the two possible explanations offered in the text: the profit effect and the misperception effect. The short-run aggregate supply curve is upward sloping, and responsive to the price level; the long-run aggregate curve is perfectly vertical and unresponsive to changes in the price level, as these two effects are absent in the long run.

Answer to Question 2

d