What is happening at the vertical section of aggregate supply (AS)?

Question

BlackTom AI · Accepted Answer

At the vertical section of the aggregate supply curve, aggregate supply is perfectly inelastic: real output is fixed at the economy’s potential (full-employment) level and does not respond to changes in the price level.

1) Relevant knowledge points and concepts
- Short-run AS (SRAS) can be upward-sloping; long-run AS (LRAS) is vertical at potential GDP.  
- Potential GDP (full-employment output) occurs when labor and other factors are fully utilized at their normal rates; unemployment is at the natural rate.  
- A vertical AS implies price-level changes affect prices/wages but not real output.

2) Step-by-step reasoning
- If the AS curve is vertical, a movement in aggregate demand (AD) changes only the price level, not real GDP.  
- That fixed real GDP corresponds to full utilization of resources. If resources were unused, increasing AD could raise output instead of only raising prices. Because output does not change, there are no unused resources available to expand production.

3) Calculations
- No numerical calculation is needed; the reasoning is conceptual. Intermediate logical steps were: vertical AS → output fixed = potential GDP → no spare capacity → price-level changes only.

4) Why the correct answer is correct
- “There are no unused resources” correctly states that at the vertical section the economy is producing at its full capacity, so additional demand cannot raise output—only the price level adjusts. That is the defining feature of the vertical (LRAS) segment.

5) Why the other options are incorrect
- “There is little spare production capacity” is misleading: “little” implies some spare capacity remains; the vertical section implies essentially zero spare capacity.  
- “Total output can increase without increasing the price level” is false: on the vertical segment, output cannot increase in response to AD changes; instead the price level changes.  
- “All of these” is therefore incorrect because not all statements are true.

6) Conclusion
- The correct answer is “there are no unused resources,” which matches the provided answer.

What is happening at the vertical section of aggregate supply (AS)?Single choice

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