If the economy is in the horizontal region of its aggregate supply curve, an increase in aggregate demand will
A) decrease real output and decrease the price level
B) decrease real output and increase the price level
C) increase real output and increase the price level
D) increase real output but have no effect on the price level

Question

Quizplus · Accepted Answer

In the horizontal region of the aggregate supply curve, the economy is operating below full capacity, meaning that increases in aggregate demand can lead to increases in real output without affecting the price level, as there are enough idle resources to meet the higher demand.

If the Economy Is in the Horizontal Region of Its