The vertical portion of the aggregate supply curve shows that at full employment an increase in the price level will:
A) not alter the economy's full-employment real GDP.
B) increase the economy's full-employment real GDP.
C) reduce the quantity of goods and services purchasers will demand.
D) improve the overall efficiency of resource use.

Question

Quizplus · Accepted Answer

The vertical portion of the aggregate supply curve represents the full employment level of output, beyond which the economy cannot produce due to limitations in resources and technology. Thus, an increase in the price level will not lead to an increase in real GDP because the economy is already producing at its maximum level.

The Vertical Portion of the Aggregate Supply Curve Shows That