The short- run aggregate supply curve
A) becomes vertical if there is excess production capacity within the economy.
B) shows a negative relationship between the price level and real national income holding constant potential GDP and all resource prices.
C) shows what each producer is willing and able to produce at each level of income holding constant potential GDP and all resource prices.
D) relates aggregate production and the price level holding constant potential GDP and all resource prices.

Question

Quizplus · Accepted Answer

The short-run aggregate supply curve shows the relationship between the level of aggregate production and the price level with potential GDP and resource prices held constant. Therefore, choice D is the correct answer. Option A is incorrect because excess production capacity would shift the short-run aggregate supply curve to the right, but it would not necessarily become vertical. Option B is incorrect because it describes the aggregate demand curve, not the short-run aggregate supply curve. Option C is incorrect because it refers to individual producer behavior, not the behavior of the economy as a whole.

The Short- Run Aggregate Supply Curve