What does the aggregate supply (AS) curve illustrate?

What does the aggregate supply (AS) curve illustrate?

• A. A line representing tax revenue versus GDP.
• B. A graphical representation that shows the relationship between the aggregate price level and the total quantity of aggregate output supplied.
• C. A curve showing imports vs exports.
• D. A graph of consumption as a function of interest rates.

Answer: (B)

The aggregate supply curve shows how much output firms are willing to produce at different overall price levels. It uses the price level on the vertical axis and real GDP (total output) on the horizontal axis. In the short run, the curve is upward-sloping because higher prices can make production more profitable, encouraging firms to supply more. In the long run, the curve is vertical at potential GDP, meaning price level changes don’t change the economy’s maximum sustainable output. The option described captures this relationship between the aggregate price level and the total quantity of output supplied, which is why it’s the correct choice. The other options refer to different relationships that aren’t about aggregate supply.

The aggregate supply curve shows how much output firms are willing to produce at different overall price levels. It uses the price level on the vertical axis and real GDP (total output) on the horizontal axis. In the short run, the curve is upward-sloping because higher prices can make production more profitable, encouraging firms to supply more. In the long run, the curve is vertical at potential GDP, meaning price level changes don’t change the economy’s maximum sustainable output. The option described captures this relationship between the aggregate price level and the total quantity of output supplied, which is why it’s the correct choice. The other options refer to different relationships that aren’t about aggregate supply.