The labels for the axes of an aggregate supply curve should be:
A) Real domestic output for the vertical axis and price level for the horizontal axis
B) Real domestic output for the horizontal axis and price level for the vertical axis
C) Real employment for the vertical axis and price level for the horizontal axis
D) Aggregate demand for the vertical axis and real national output for the horizontal axis

Question

Quizplus · Accepted Answer

The vertical axis of an aggregate supply curve represents the level of real domestic output (usually measured in terms of Gross Domestic Product or GDP) while the horizontal axis represents the price level (usually measured by a price index like the Consumer Price Index or CPI). Therefore, the correct label for the axes of an aggregate supply curve is Real domestic output for the horizontal axis and price level for the vertical axis. This is because in the short run, output is largely fixed, and firms adjust prices to meet the level of demand, whereas in the long run, all factors of production are variable, and output can adjust to changes in prices.

The Labels for the Axes of an Aggregate Supply Curve