The aggregate supply curve relating the price level to real GDP has three distinguishing segments.Which one of the following indicates the segments?
A)The horizontal segment reflects increasing pressure on the price level as firms bid for resources. The upward-sloping segment reflects the availability of unused resources. The vertical segment reflects the full employment of all resources.
B)The horizontal segment reflects the availability of unused resources. The upward-sloping segment reflects the full employment of all resources. The vertical segment reflects increasing pressure on the price level as firms bid for resources.
C)The horizontal segment reflects the full employment of all resources. The upward-sloping segment reflects increasing pressure on the price level as firms bid for resources. The vertical segment reflects the availability of unused resources.
D)The horizontal segment reflects the availability of unused resources. The downward-sloping segment reflects decreasing pressure on the price level as firms bid for resources. The vertical segment reflects the full employment of all resources.
E)The horizontal segment reflects the availability of unused resources. The upward-sloping segment reflects increasing pressure on the price level as firms bid for resources. The vertical segment reflects the full employment of all resources.

Question

Quizplus · Accepted Answer

The horizontal segment reflects the availability of unused resources, as firms can increase production without increasing the price level. The upward-sloping segment reflects increasing pressure on the price level as firms bid for resources that are becoming scarcer as the economy approaches full employment. The vertical segment reflects the full employment of all resources, at which point any further increases in demand can only be met with higher prices, as firms cannot increase output without bidding away resources from other firms.

The Aggregate Supply Curve Relating the Price Level to Real