Question

With a fixed price level, aggregate supply is represented by:

Options

• A horizontal line at the fixed price level

• A 45° line

• A vertical line at full-employment output

• An upward-sloping line parallel to the consumption function

Answer 1

With the price level fixed, aggregate supply is represented by a 45° line. Every point on the 45° line has equal horizontal and vertical coordinates, meaning whatever the level of GDP, the same amount is supplied — the price level has no role.