A decrease in AS will trigger less inflation under which of the following conditions?
A)AD is relatively steep.
B)AD is relatively flat.
C)AS is relatively steep.
D)AS is relatively flat.

Question

Quizplus · Accepted Answer

When AD is relatively flat, a decrease in AS will cause a smaller increase in prices because there is excess capacity and firms are unable to raise prices easily. In contrast, when AD is steep, a decrease in AS will cause a larger increase in prices as firms are able to pass on the higher costs to consumers through higher prices.

A Decrease in AS Will Trigger Less Inflation Under Which