Aggregate demand shocks have a large effect on real GDP and a small effect on the price level
A)on the downward- sloping portion of the AS curve.
B)the steeper the AS curve.
C)if the AD curve is steep.
D)when the AS curve is vertical.
E)the flatter the AS curve.

Question

Quizplus · Accepted Answer

When the AS curve is flatter, there is more room for output to increase in response to an aggregate demand shock before the economy reaches its full capacity, so the effect on real GDP is larger. However, the flatter AS curve also means that there is less upward pressure on prices from increased demand, resulting in a smaller effect on the price level.

Aggregate Demand Shocks Have a Large Effect on Real GDP