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At the far right of the aggregate supply curve, where the economy is near potential GDP and labor and machinery are fully employed, what happens when the output price level rises further?
AHigher prices barely add output once inputs are fully employed
BOutput rises just as easily as at low output levels
CFirms shut down rather than raise their prices
DUnemployment jumps to its highest level at once
Answer & Solution
Correct answer: A. Higher prices barely add output once inputs are fully employed
1. Near potential GDP, the economy has already used up its available labor and machinery.
2. Even if firms want to produce more because prices are higher, there are no more idle inputs left to hire.
3. This is why the far-right portion of the AS curve is drawn nearly vertical rather than flat.
4. Option D confuses this near-full-employment condition with high unemployment, which is the opposite situation.
_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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