If you were to draw a line on a graph with the price level on the vertical axis and real GDP on the horizontal axis that would represent aggregate supply, you would draw
A) a horizontal line at the current price level to reflect your taking price to be exogenous in the short run.
B) a vertical line at potential GDP to reflect your taking aggregate supply to be determined by an exogenous capital stock, a given technology, and employment equal to its potential.
C) a downward-sloping line to reflect the diminished profitability of producing output when prices are high.
D) an upward-sloping line to reflect the ability of higher prices to elicit expanded output.
E) none of the above.
Correct Answer:
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