Question

The aggregate supply curve has a significantly different curve or arc to it than the aggregate demand curve. what is one of the key reasons for the different shape of the aggregate supply curve?
a. as an economy gets closer to full production capacity, even small increases in production become very expensive, so prices have to rise much higher for each increase in production.
b. rgdp has different effects on the price level at different levels of production.
c. the price level has different effects on rgdp at different levels of production.
d. as an economy approaches full production capacity, it becomes much easier to produce more goods without price increases.

Answer 1

A.

As full employment is approached, resources start to become scarce and firms will compete over them, such as raw materials, labor, etc. As a result, wages and costs will be pushed up and prices will start to rise, whereas output will start increasing at a smaller rate then completely stop and be horizontal, as that is then full employment.