Vertical Long-Run Aggregate Supply Curve Maintains Full Employment

Steps:

• Identify that long-run AS curves differ by slope: vertical (classical), upward-sloping, or horizontal (Keynesian extremes).
• A long-term fall in aggregate demand shifts AD leftward, potentially lowering output and employment unless AS is insensitive to demand.
• Employment remains unchanged only if output stays at the natural full-employment level, independent of price level changes.
• The vertical LRAS curve fixes output at potential GDP, ensuring employment holds steady.

Why D is correct:

• Vertical LRAS reflects classical dichotomy, where real variables like employment are determined by supply-side factors (e.g., labor market equilibrium), not nominal demand shifts.

Why the others are wrong:

• A (upward-sloping): Output falls with AD shift, reducing employment below full levels.
• B (horizontal): Price level fixed, but output contracts with AD, lowering employment.
• C (kinked or intermediate): Partial output adjustment to AD fall permits employment decline.

Final answer: D