Suppose firms are currently producing output at a level beyond their normal capacity.In this situation,the AS curve will be relatively ________ and a positive AD shock will result in ________.
A)steep; an increase in the price level with a small increase in real GDP
B)flat; an equal increase in the price level and in real GDP
C)flat; a very small increase in prices but a large increase in real GDP
D)flat; a very small decrease in the price level and a decrease in real GDP
E)steep; a decrease in the price level and a very small decrease in real GDP

Question

Quizplus · Accepted Answer

When firms are producing beyond their normal capacity, the Aggregate Supply (AS) curve becomes relatively steep. In this situation, a positive Aggregate Demand (AD) shock would primarily increase the price level while resulting in only a small increase in real GDP, as firms have less capacity to increase production further.

Suppose Firms Are Currently Producing Output at a Level Beyond