The steeper the short-run aggregate supply curve,_____.
A)the steeper the aggregate demand curve
B)the larger the value of the spending multiplier
C)the larger the budget surplus
D)the larger the impact of a shift in aggregate demand on the equilibrium price level
E)the larger the impact of a shift in aggregate demand on the equilibrium output level

Question

Quizplus · Accepted Answer

If the short-run aggregate supply curve is steep, it means that the economy is operating close to its potential output level and there is little excess capacity. In this situation, a shift in aggregate demand (either an increase or decrease) has a larger impact on the equilibrium price level compared to the equilibrium output level. Hence, option D is correct. The other options are unrelated to the steepness of the short-run aggregate supply curve.

The Steeper the Short-Run Aggregate Supply Curve,_____