The horizontal short-run aggregate supply curve
A) assumes that wages and all other input prices are constant.
B) shows that real GDP can be increased only when prices increase.
C) assumes that there is full employment in the economy.
D) assumes that opportunity cost is constant.

Question

Quizplus · Accepted Answer

The horizontal short-run aggregate supply curve assumes that wages and all other input prices are constant, meaning that the increase in the price level will not affect the cost of production. Therefore, output will increase without any increase in the price level, resulting in a horizontal supply curve.

The Horizontal Short-Run Aggregate Supply Curve