If the aggregate supply curve is horizontal,

Question

Quizplus · Accepted Answer

When the aggregate supply curve is horizontal, it indicates that there are unemployed resources, the economy is operating inside its production possibilities frontier, and it is possible to increase output without driving up prices by utilizing these unemployed resources. This situation typically occurs at levels of output below full employment, where increases in demand can lead to increases in production without price increases.

If the Aggregate Supply Curve Is Horizontal