The aggregate supply curve
A) is explained by the interest rate, real-balances, and foreign purchases effects.
B) gets steeper as the economy moves from the top of the curve to the bottom of the curve.
C) shows the various amounts of real output that businesses will produce at each price level.
D) is downsloping because real purchasing power increases as the price level falls.

Question

Quizplus · Accepted Answer

The aggregate supply curve shows the various amounts of real output that businesses will produce at each price level. The interest rate, real-balances, and foreign purchases effects are factors that affect aggregate demand. The slope of the curve can vary depending on the factors affecting production costs and technology, but it generally slopes upward in the short run and becomes more vertical in the long run. The statement in option D is incorrect as the aggregate supply curve is downsloping due to higher prices leading to an increase in real production costs and reducing firms' incentives to produce.

The Aggregate Supply Curve