A perfectly elastic aggregate supply curve implies that:

(A) There is fuller utilization of resources in the economy.
(B) There is unemployment of resources in the economy.
(C) There is excess capacity in the economy.
(D) Aggregate demand is less in the economy.

Choose the correct answer from the options given below:

(B), (C) and (D) only

The correct answer is Option (2) → (B), (C) and (D) only

A perfectly elastic aggregate supply curve, which is represented as a horizontal line, exists when the economy is in a recession or a state of depression. In this scenario, firms can increase production without raising prices because they are not operating at full capacity.

(A) There is fuller utilization of resources in the economy. Incorrect. Full utilization occurs when the AS curve becomes vertical (perfectly inelastic), not when it is perfectly elastic.

(B) There is unemployment of resources in the economy. Correct. Since the economy is not at full employment, unused resources like labor and capital are available.

(C) There is excess capacity in the economy. Correct. Firms can increase output without increasing the price level, indicating spare productive capacity.

(D) Aggregate demand is less in the economy. Correct. A flat AS curve shows that aggregate demand is not sufficient to fully utilize the available resources.