When all else is equal, if an increase in government spending leads to an increase in equilibrium output and no change in equilibrium price, then we can conclude that the economy must be operating on the:
A) classical range of the short-run aggregate supply curve.
B) Keynesian range of the short-run aggregate supply curve.
C) upward-sloping range of the short-run aggregate supply curve.
D) long-run aggregate supply curve.

Question

Quizplus · Accepted Answer

This scenario describes the Keynesian range of the short-run aggregate supply curve, where increases in demand (such as from increased government spending) lead to increases in output without changing the price level, indicating excess capacity or underemployment in the economy.

When All Else Is Equal, If an Increase in Government