Final answer:
The short-run aggregate supply curve becomes nearly vertical at output levels above full-employment output, indicating that the economy has reached its capacity and can't produce additional outputs regardless of price increases.
Step-by-step explanation:
The short-run aggregate supply curve (AS) illustrates the relationship between the price level of goods and the amount of goods that firms are willing to produce. According to the information provided, the AS curve slopes upward because as the price level for outputs rises, with the price of inputs remaining fixed, firms are incentivized to produce more due to the opportunity to earn higher profits. At output levels below potential GDP, the curve is relatively flat because there is a higher rate of unemployment and underutilized capacity in factories, meaning that increases in prices can lead to considerable increases in output without much rise in input costs.
However, the AS curve becomes nearly vertical at output levels above full-employment output. This is because at this point, known as potential GDP or full-employment GDP, all labor, machinery, and capital are fully employed, and thus firms cannot easily increase production even if prices rise. In essence, the economy is operating at its maximum capacity, so the supply curve reflects that there is little to no ability to increase output, with the curve representing a vertical line at this stage.