Question

Which of the following is true? Select one: a. If the economy is close to capacity, with resources almost fully employed, the AS curve will be flat b. If the economy is in a recession, with idle resources, the AS curve will be steep c. If the economy is at full capacity, then the AS curve will be vertical. d. None of the above

Answer 1

Answer:

Correct option is C.

If the economy is at full capacity, then the AS curve will be vertical

Explanation:

The long-run aggregate supply curve is perfectly vertical, which reflects economists' belief that the changes in aggregate demand only cause a temporary change in an economy's total output. For the short-run aggregate supply, the quantity supplied increases as the price rises.

The full capacity AS curve is a long-run AS curved and it is vertical as the potential output level is denoted by it with the fully employed resources.