Fiscal and monetary policies are most effective in reducing inflation when the aggregate
A)Supply curve is horizontal.
B)Supply curve is vertical.
C)Supply curve is upward-sloping but not vertical.
D)Demand curve is vertical.

Question

Quizplus · Accepted Answer

When the aggregate supply curve is vertical, it indicates that output is at its full capacity, and any increase in demand will only lead to higher prices, not more output. Thus, fiscal and monetary policies aimed at reducing inflation are most effective in this scenario.

Fiscal and Monetary Policies Are Most Effective in Reducing Inflation