Consider an economy with a relatively steep AS curve.If the AD curve shifts to the left,then the price level will ________ and national output will ________.
A)increase slightly; significantly increase
B)increase slightly; significantly decrease
C)increase sharply; increase slightly
D)fall sharply; will not change.
E)fall sharply; decrease slightly.

Question

Quizplus · Accepted Answer

A steep AS curve means that the economy is operating close to its potential output, so a shift in AD to the left will lead to a sharp fall in both price level and national output. Therefore, option E is the best choice.

Consider an Economy with a Relatively Steep AS Curve