Suppose an increase in government spending stimulates real GDP without affecting the price level.What is the relevant range of the aggregate supply curve in this case?
A)The classical range.
B)The intermediate range.
C)The Keynesian range.
D)The monetarist range.
E)The optimal range.

Question

Quizplus · Accepted Answer

The Keynesian range of the aggregate supply curve is relevant in this case because it assumes that there are idle resources in the economy which can be used to increase output without increasing prices. In other words, the economy is not at full employment, and therefore an increase in government spending can have a positive effect on real GDP without causing inflation.

Suppose an Increase in Government Spending Stimulates Real GDP Without