When the economy's AS curve is positively sloped, the multiplier in the AD/AS model is
A)larger than the simple multiplier.
B)constant.
C)smaller than the simple multiplier.
D)equal to one.
E)equal to the simple multiplier.

Question

Quizplus · Accepted Answer

When the economy's AS curve is positively sloped, it means that an increase in aggregate demand would lead to an increase in both output and prices. This implies that there is a limit to how much output can be increased without causing inflation. As a result, the multiplier in the AD/AS model would be smaller than the simple multiplier because the overall effect of an increase in aggregate demand would be less due to the limited ability of the economy to increase output before encountering inflationary pressures.

When the Economy's AS Curve Is Positively Sloped, the Multiplier