When the aggregate supply curve is horizontal,
A) many firms are likely to have excess capacity.
B) the economy is close to full capacity.
C) resources are being utilized at full capacity.
D) the prices level increases with additional production.

Question

Quizplus · Accepted Answer

A horizontal aggregate supply curve indicates that there is excess capacity in the economy, meaning that firms are able to increase production without increasing their costs significantly. This suggests that resources are not being fully utilized and there is potential for the economy to increase output without causing inflation.

When the Aggregate Supply Curve Is Horizontal