Question

The horizontal segment of the aggregate supply curve a) marks the full-employment level of real GDP...

The horizontal segment of the aggregate supply curve

a) marks the full-employment level of real GDP
b) shows that real GDP can increase only by affecting the economy’s price level
c) shows that real GDP can increase without affecting the economy’s price level.
d) depicts a negative relationship between real GDP and the price level.
e) depicts a positive relationship between real GDP and the price level.
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Answer #1

The horizontal segment of the aggregate supply curve, is horizontal line, so aggregate supply can increasse without affecting the price level on this segment of the aggregate supply curve. So with the rightward shifts of the aggregate demand curve on this segment of aggregate supply curve. The real GDP increase but price level remain constant on this horizontal aggregate supply curve.

Hence option c is the correct answer.

Option c is: show that real GDP can increasse without affecting the economy's price level.

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