Exhibit 14-6 Aggregate supply curve

-In Exhibit 14-6,the economy's employment potential is fully exhausted at:
A) GDP = $1,000 billion.
B) GDP = $1,100 billion.
C) GDP = $1,200 billion.
D) GDP slightly above $1,200 billion.
E) the employment potential is never fully exhausted.

Question

Exhibit 14-6 Aggregate supply curve
 
-In Exhibit 14-6,the economy's employment potential is fully exhausted at:
A) GDP = $1,000 billion. 
B) GDP = $1,100 billion. 
C) GDP = $1,200 billion. 
D) GDP slightly above $1,200 billion. 
E) the employment potential is never fully exhausted.

Quizplus · Accepted Answer

At GDP = $1,200 billion, the aggregate supply curve becomes perfectly inelastic and the economy's employment potential is fully exhausted. Beyond this point, any increase in demand will only lead to higher prices and inflation but not an increase in output. Therefore, choice C is the correct answer.

Exhibit 14-6 Aggregate Supply Curve