A horizontal short-run aggregate supply curve reflects
A) no upward pressure on prices because of significant levels of unemployed productive capacity.
B) full employment of the economy's resources.
C) falling price levels.
D) stagflation.
E) Say's law.

Question

Quizplus · Accepted Answer

A horizontal short-run aggregate supply curve reflects a situation where there is significant levels of unemployed productive capacity, which means there is no upward pressure on prices. This is because firms can increase output without having to increase the cost of production, as they have surplus capacity available. This is also known as a Keynesian view of the short-run aggregate supply curve.

A Horizontal Short-Run Aggregate Supply Curve Reflects