If the aggregate demand curve shifts rightward following a decrease in the federal funds rate, what can be concluded if the short- run aggregate supply curve is rather steep?

Question

Quizplus · Accepted Answer

If the short-run aggregate supply curve is rather steep, it means that the economy is close to its potential output and any increase in aggregate demand will lead to a higher price level rather than a significant increase in real GDP. Therefore, if the aggregate demand curve shifts rightward following a decrease in the federal funds rate, there will be little increase in real GDP but a significant increase in the price level.

If the Aggregate Demand Curve Shifts Rightward Following a Decrease