The short-run aggregate supply curve is horizontal when
A) prices are inflexible and the economy is at full employment.
B) there are unemployed resources and prices do not increase when aggregate demand increases.
C) there are unemployed resources and prices do not decrease when aggregate supply increases.
D) there are no unemployed resources and prices do not increase when aggregate demand or supply increases.

Question

Quizplus · Accepted Answer

The short-run aggregate supply curve is horizontal when there are unemployed resources and prices do not increase when aggregate demand increases. This is because firms can increase output without increasing their costs, as they are using unemployed resources, thus leading to an increase in aggregate supply without an increase in prices.

The Short-Run Aggregate Supply Curve Is Horizontal When