Consider the basic AD/AS model with a very steep,positively sloped AS curve.A negative aggregate demand shock will result in
A)an increase in the price level and a decrease in real national income.
B)an increase in both the price level and real national income.
C)a decrease in the price level with almost no change in real national income.
D)a decrease in the price level and an increase in real national income.
E)no change in either price level or output.

Question

Quizplus · Accepted Answer

A very steep, positively sloped AS curve implies that the economy is operating at or near full capacity. Therefore, a negative aggregate demand shock would primarily affect the price level, leading to a decrease, with minimal impact on real national income due to the inelastic nature of the supply at this point.

Consider the Basic AD/AS Model with a Very Steep,positively Sloped