Consider an economy with a relatively steep AS curve. If the AD curve shifts to the left, then the price level will and national output will .
A)increase slightly; significantly decrease
B)increase slightly; significantly increase
C)increase sharply; increase slightly
D)fall sharply; decrease slightly.
E)fall sharply; will not change.

Question

Quizplus · Accepted Answer

In an economy with a steep AS curve, a leftward shift in the AD curve will lead to a fall in both price level and national output. This is because the steep AS curve implies that the economy is operating at or close to its potential output level, and any decrease in AD will lead to a significant decrease in output, while the steepness of the AS curve will prevent prices from adjusting sufficiently to prevent this fall in output. Therefore, the correct answer is D.

Consider an Economy with a Relatively Steep AS Curve