Final answer:
Aggregate supply (AS) represents the total amount of goods and services that firms will produce and sell at each possible price level in the economy. The AS curve illustrates how this total quantity changes with price levels. When an economy is at its potential GDP, the AS curve becomes vertical, signifying full resource utilization. Hence, the correct answer is option (2).
Step-by-step explanation:
The total amount of goods and services in the economy available at all possible price levels is referred to as aggregate supply (AS). It is the total quantity of output or real Gross Domestic Product (GDP) that firms are willing to produce and sell at each price level. The aggregate supply (AS) curve graphically represents this relationship, typically sloping upwards from left to right. At lower price levels, firms supply a smaller quantity of goods and services, while at higher price levels, they supply a greater quantity due to the incentive of higher profits.
It is important to note that when an economy reaches its potential GDP, the AS curve becomes nearly vertical, indicating that higher prices cannot encourage additional output because all resources are fully utilized (this is also known as full-employment GDP).