If a decrease in the Z factors resulted in a very large change in the price level and a very small change in aggregate output,
A) then in the U.S. economy investment demand must not be sensitive to the interest rate.
B) then the U.S. economy must have been on the very steep part of its short-run aggregate supply curve.
C) then the U.S. economy must have been on the very flat part of its short-run aggregate supply curve.
D) then the U.S. aggregate demand curve must be very steep.

Question

Quizplus · Accepted Answer

When the economy is on the very steep part of its short-run aggregate supply curve, a decrease in the Z factors (factors that shift the aggregate demand curve) would result in a large change in the price level and a very small change in aggregate output, as described. This is because, on the steep part of the curve, the economy is near its full capacity, and changes in demand primarily affect prices rather than output.

If a Decrease in the Z Factors Resulted in a Very