The aggregate supply curve tends to be relatively steep when GDP is above potential output because firms are operating above and _ _ are rising rapidly.
A)capacity; unit costs
B)equilibrium output; average costs
C)profit- maximizing output; total costs
D)equilibrium output; unit costs
E)equilibrium output; total costs

Question

Quizplus · Accepted Answer

When GDP is above potential output, firms are operating at a high level of capacity utilization, meaning that they are using a large proportion of their available resources. As a result, the cost of producing additional output begins to increase rapidly, leading to higher unit costs. This causes the aggregate supply curve to be relatively steep, as firms are less willing to supply additional output at any given price level.

The Aggregate Supply Curve Tends to Be Relatively Steep When