Suppose firms are currently producing output at a level beyond their normal capacity. In this situation, the AS curve will be relatively and a positive AD shock will result in .
A)steep; a decrease in the price level and a very small decrease in real GDP.
B)flat; a very small increase in prices but a large increase in real GDP.
C)steep; an increase in the price level with a small increase in real GDP.
D)flat; an equal increase in the price level and in real GDP.
E)flat; a very small decrease in the price level and a decrease in real GDP.

Question

Quizplus · Accepted Answer

When firms are producing beyond their normal capacity, the AS curve is steep, meaning that any increase in AD will primarily lead to higher prices rather than a significant increase in real GDP.

Suppose Firms Are Currently Producing Output at a Level Beyond