Consider the AD/AS model. An increase in government purchases will have no impact on equilibrium real GDP if
A)the AS curve slopes upward.
B)the simple multiplier is very small.
C)the AS curve is vertical.
D)the marginal propensity to spend is very small.
E)the AS curve is horizontal.

Question

Quizplus · Accepted Answer

If the AS curve is vertical, then any increase in aggregate demand (such as an increase in government purchases) will only result in an increase in prices, with no change in real GDP. This is because the economy has reached its full capacity and any increase in demand can only be satisfied by an increase in prices, not an increase in output.

Consider the AD/AS Model