Other things remaining unchanged, the flatter the aggregate supply curve:
A)the greater the expansionary effect of an increase in aggregate demand.
B)the smaller the inflationary effect of an increase in aggregate demand.
C)the greater the recessionary effect of a decrease in aggregate demand.
D)the greater the expansionary effect of a decrease in aggregate demand.
E)the smaller the recessionary effect of an increase in aggregate demand.

Question

Quizplus · Accepted Answer

A flatter aggregate supply curve suggests that there is more spare capacity in the economy. Therefore, an increase in aggregate demand will have a smaller inflationary effect since there is more room for firms to increase output without pushing up prices.

Other Things Remaining Unchanged, the Flatter the Aggregate Supply Curve