The aggregate supply curve becomes vertical
A) when there is significant excess capacity.
B) as the prices of raw materials and labor fall.
C) at full employment.
D) because demand falls as prices rise.
E) for reasons that are a mystery to most economists.

Question

Quizplus · Accepted Answer

The vertical aggregate supply curve represents a situation in which the economy is producing at its potential output or full employment level. At this point, any further increase in demand can only be met by an increase in prices, as the economy is producing at its maximum capacity. Thus, the vertical aggregate supply curve reflects the idea that the economy's output is dependent on the available resources and technology, but not on the aggregate price level.

The Aggregate Supply Curve Becomes Vertical