In the basic AD/AS model, the effect of an aggregate demand shock is divided between a change in output and a change in the price level. How the effect is divided depends on the
A)position of the AE curve.
B)size of the simple multiplier.
C)slope of the AS curve.
D)slope of the AD curve.
E)amount of inflation in the economy.

Question

Quizplus · Accepted Answer

The slope of the AS curve determines the degree to which changes in aggregate demand affect the price level versus output. A flatter AS curve means more of the demand shock will go towards increasing output, while a steeper AS curve means more of the shock will go towards increasing the price level.

In the Basic AD/AS Model, the Effect of an Aggregate