Why is the aggregate supply curve very flat at low levels of output below the full-employment...

Why is the aggregate supply curve very flat at low levels of output below the full-employment level?

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Expert Solution

Aggregate supply curve is horizontal or flat which means in order to increase output, there is no need to increase price because when output is below full employment or potential output then there are unemployment resources or unemployed labor. In order to use those unemployed resources there is no need to increase the price of these resources which doesnot lead to change in cost of production leading to no further change in price

Thus AS is flat or horizontal at an output level below full employment level

Rahul Sunny answered 1 year ago

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