The aggregate supply curve -

Question

BlackTom AI · Accepted Answer

The question asks about the aggregate supply curve. Since no answer options are listed, I will evaluate the provided statement and clarify the concept accordingly.

Given statement: "relates aggregate output supplied by all firms with the price level of the economy." This captures the core idea of the aggregate supply (AS) relationship: AS shows how much output the economy’s firms are willing to supply at different overall price levels. It uses the price level as the key independent variable and total output (aggregate output) as the dependent variable, with other factors held constant in the analysis.

However, precision matters. In the short run, the AS curve is typically upward-sloping: higher price levels tend to increase output because prices rise faster than input costs (or wages are sticky), encouraging more production. In the long run, the AS curve is often modeled as vertical at potential (natural) output, reflecting that the economy’s long-run output is determined by factors like tech, capital, and labor, not the price level.

If we were choosing among multiple options, a more complete correct statement might read: "The aggregate supply curve shows the relationship between the overall price level and the total output producers are willing to supply, holding all else equal; it is upward-sloping in the short run and vertical at the long-run level of potential output."

In summary, the provided statement is a generally accurate description of the aggregate supply concept, conveying the fundamental linkage between price level and total output, while additional qualifiers about time horizons (short run vs long run) would enhance precision.

ECON 2020-001 Spring 2025 Module 6 Quiz

The aggregate supply curve -

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