The aggregate supply curve relating the price level to real GDP has three distinguishing segments. Which one of the following indicates the segments?
A) The horizontal segment reflects increasing pressure on the price level as firms bid for resources. The upward-sloping segment reflects the availability of unused resources. The vertical segment reflects the full employment of all resources.
B) The horizontal segment reflects the availability of unused resources. The upward-sloping segment reflects the full employment of all resources. The vertical segment reflects increasing pressure on the price level as firms bid for resources.
C) The horizontal segment reflects the full employment of all resources. The upward-sloping segment reflects increasing pressure on the price level as firms bid for resources. The vertical segment reflects the availability of unused resources.
D) The horizontal segment reflects the availability of unused resources. The upward-sloping segment reflects increasing pressure on the price level as firms bid for resources. The vertical segment reflects the full employment of all resources.

Question

Quizplus · Accepted Answer

The horizontal segment of the aggregate supply curve indicates a period where there are unused resources, and output can increase without affecting the price level. The upward-sloping segment represents a situation where some resources are fully employed, and increases in demand start to put pressure on the price level. The vertical segment indicates a point where all resources are fully employed, and any attempt to increase output only leads to higher prices, not an increase in real GDP.

The Aggregate Supply Curve Relating the Price Level to Real