When aggregate output is determined solely by the level of aggregate demand, the relation between aggregate supply and price is?

Option 1 -> Less Elastic: This implies some price responsiveness but not complete, which doesn't fit the demand-determined output scenario.

Option 2 -> More Elastic: This is a relative term and doesn't accurately describe the specific relationship in a demand-determined economy.

Option 3 -> Perfectly Elastic: The aggregate supply curve is horizontal, meaning firms can supply any quantity at the existing price level without price changes.

Option 4 -> Perfectly Inelastic: This describes a vertical supply curve where output is fixed regardless of price, typical of full employment situations.

Hence, Option 3: Perfectly Elastic -> When aggregate output is determined solely by aggregate demand, the economy operates in the Keynesian range with unemployed resources and idle capacity. Firms can increase production without facing rising costs, so they supply any quantity demanded at the prevailing price level. This creates a horizontal (perfectly elastic) aggregate supply curve where price remains constant while output varies with demand. This contrasts with the classical case where supply is perfectly inelastic (vertical) at full employment. -> correct