Consider an economy with a relatively steep AS curve.If there is a shift to the right in the AD curve,there will be a ________ in the price level and ________ in national output.
A)small increase; a large increase
B)small increase; a large decrease
C)large increase; a small increase
D)large increase; a small decrease
E)large increase; no change

Question

Quizplus · Accepted Answer

A steep AS curve means that there is limited spare capacity in the economy, so any increase in demand (shift to the right in AD) will lead to a large increase in the price level. However, the increase in output will be relatively small due to the limited spare capacity. Therefore, the correct answer is C) large increase in the price level and a small increase in national output.

Consider an Economy with a Relatively Steep AS Curve