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What does aggregate supply refer to in the AD/AS model?
AThe total quantity of real GDP that firms will produce and sell
BThe total spending by households on imported goods only
CThe interest rate the central bank sets each quarter
DThe total tax revenue collected by the government
Answer & Solution
Correct answer: A. The total quantity of real GDP that firms will produce and sell
1. Aggregate supply is the macroeconomic counterpart of a firm's own quantity supplied, but for the whole economy.
2. It measures total real GDP that all firms together are willing to produce and sell.
3. It is not about spending, interest rates, or tax revenue, which are separate macroeconomic variables.
4. The aggregate supply curve then shows this quantity at each possible price level.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 10 "The Aggregate Demand/Aggregate Supply Model", section 10.2 | Building a Model of Aggregate Demand and Aggregate Supply_
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