Why is the very short-run aggregate supply curve horizontal?
A)Businesses have not adjusted their prices yet after an economic shock.
B)This is the price ceiling for the economy.
C)Production has returned to potential GDP levels.
D)This is the price level consistent with the Federal Reserve's inflation target.

Question

Quizplus · Accepted Answer

The very short-run aggregate supply curve is horizontal because businesses have not yet adjusted their prices in response to changes in demand or other economic shocks. This is because it takes time for firms to adjust their prices in response to changing market conditions.

Why Is the Very Short-Run Aggregate Supply Curve Horizontal