If all prices are stuck at a predetermined level, then when a short-run aggregate supply curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, this curve:
A) is horizontal.
B) is vertical.
C) slopes upward and to the right.
D) slopes downward and to the right.

Question

Quizplus · Accepted Answer

When all prices are stuck at a predetermined level, it means that the price level does not change regardless of changes in real GDP. This scenario is represented by a horizontal short-run aggregate supply curve, indicating that output can change without affecting the price level.

If All Prices Are Stuck at a Predetermined Level, Then