Suppose there is a change in government purchases.Under what circumstances will such a change have the greatest effect on the economy in the short run?
A) if the aggregate demand curve is relatively flat
B) if the aggregate demand curve is relatively steep
C) if the short-run aggregate supply curve is relatively flat
D) if the aggregate demand curve is vertical

Question

Suppose there is a change in government purchases.Under what circumstances will such a change have the greatest effect on the economy in the short run?  
A) if the aggregate demand curve is relatively flat 
B) if the aggregate demand curve is relatively steep 
C) if the short-run aggregate supply curve is relatively flat 
D) if the aggregate demand curve is vertical

Quizplus · Accepted Answer

A relatively flat short-run aggregate supply curve means that changes in government purchases will lead to larger changes in output and employment, as prices are less likely to rise significantly.

Suppose There Is a Change in Government Purchases