Chapter 7
2. What assumptions cause the immediate-short-run
aggregate supply curve to be horizontal? Why is the long-run
aggregate supply curve vertical? Explain the shape of the
short-run aggregate supply curve. Why is the short-run curve
relatively flat to the left of the full-employment output and
relatively steep to the right?
The immediate-short-run aggregate supply curve assumes that
both input prices and output prices stay fixed. With output
prices fixed, the aggregate supply curve is horizontal at the
current price level.
The long-run aggregate supply curve is vertical (at the full-
