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.

Question

Quizplus · Accepted Answer

The horizontal segment of the aggregate supply curve depicts a situation where real GDP can increase without affecting the economy's price level. This is because in this segment, firms have excess capacity and can increase production without raising prices. This can happen due to factors such as technological progress or an increase in the availability of resources. As a result, the economy can experience an increase in output without triggering inflation.

The Horizontal Segment of the Aggregate Supply Curve