In the basic AD/AS model,the effect of an aggregate demand shock is divided between a change in output and a change in the price level.How the effect is divided depends on the
A)amount of inflation in the economy.
B)position of the AE curve.
C)size of the simple multiplier.
D)slope of the AD curve.
E)slope of the AS curve.

Question

Quizplus · Accepted Answer

The slope of the AS curve determines how the effect of an aggregate demand shock is divided between output and the price level. A steeper AS curve would result in a larger increase in the price level and a smaller increase in output, while a flatter AS curve would result in a smaller increase in the price level and a larger increase in output. Therefore, the slope of the AS curve is the determining factor in how the effect of an aggregate demand shock is divided.

In the Basic AD/AS Model,the Effect of an Aggregate Demand