The aggregate supply curve tends to be relatively steep when GDP is above potential output because firms are operating above ________,and ________ are rising rapidly.
A)equilibrium output; unit costs
B)profit-maximizing output; total costs
C)capacity; unit costs
D)equilibrium output; total costs
E)equilibrium output; average costs

Question

Quizplus · Accepted Answer

When GDP is above potential output, firms are operating at or above their full capacity, meaning they are producing at their maximum level of output. As a result, unit costs may be increasing due to factors such as labor shortages, increased demand for inputs, or the need for overtime pay. This leads to a relatively steep aggregate supply curve, indicating that firms are less willing and able to increase their output in response to increases in price levels.

The Aggregate Supply Curve Tends to Be Relatively Steep When