The horizontal segment of the aggregate supply curve:
A) shows that real GDP can increase only by affecting the economy's price level.
B) shows that real GDP can increase without affecting the economy's price level.
C) depicts a positive relationship between real GDP and the price level.
D) depicts a negative relationship between real GDP and the price level.
E) marks the full-employment level of real GDP.

Question

Quizplus · Accepted Answer

The horizontal segment of the aggregate supply curve shows that real GDP can increase without affecting the economy's price level. This level represents the economy's productive capacity, or potential output, and is not influenced by changes in the price level. An increase in demand or government spending can result in an increase in real GDP without affecting prices in this zone.

The Horizontal Segment of the Aggregate Supply Curve