Under which of the following conditions will a change in government purchases have the greatest effect on the economy in the short run?
A) The aggregate demand curve is relatively flat.
B) The aggregate demand curve is relatively steep.
C) The short-run aggregate supply curve is relatively flat.
D) The aggregate demand curve is vertical.
E) The short-run aggregate supply curve is vertical.

Question

Quizplus · Accepted Answer

When the short-run aggregate supply curve is relatively flat, it indicates that there is a lot of unused capacity in the economy, so changes in government purchases can lead to significant increases in output and employment without causing much inflation.

Under Which of the Following Conditions Will a Change in Government