Over the horizontal range of the economy's AS curve (assuming such a range exists), a leftward shift of the AD curve will result in
A)a decrease in both real GDP and prices.
B)an increase in prices and no change in real GDP.
C)a decrease in real GDP but no change in prices.
D)an increase in real GDP and no change in prices.
E)an increase in both real GDP and prices.

Question

Quizplus · Accepted Answer

Over the horizontal range of the AS curve, the economy is already producing at its full capacity level of output. Therefore, any leftward shift in the AD curve would result in a decrease in voluntary production, causing a decrease in the real GDP. However, since the output level is already at its full capacity, there would be no change in the price level. Hence, the correct answer is C, a decrease in real GDP but no change in prices.

Over the Horizontal Range of the Economy's AS Curve (Assuming