AD-AS Model Features

Steps:

• Recognize the diagram as the standard AD-AS model with short-run and long-run AS curves.
• Observe the long-run AS curve is vertical at potential output level.
• Evaluate each statement against curve shapes and component definitions.
• Select the statement aligning with the vertical AS limit on output.

Why A is correct:

• Long-run aggregate supply (LRAS) is vertical at full-employment output per the classical dichotomy, preventing output increases beyond potential regardless of price level.

Why the others are wrong:

• B: Consumption falls with higher prices due to real wealth effects, but the incomplete phrasing ("is lower when the general level of prices is") misstates the relationship.
• C: Investment is a component of aggregate demand (AD), not aggregate supply (AS), which focuses on production costs.
• D: Higher export demand shifts AD rightward, increasing it, not lowering.

Final answer: A