The government increases its expenditures. The steeper the SAS curve, the ________ will be the increase in the price level and the ________ will be the increase in real GDP.

Question

Quizplus · Accepted Answer

A steeper Short-Run Aggregate Supply (SAS) curve indicates that prices are more sensitive to changes in demand. Therefore, an increase in government expenditures will lead to a larger increase in the price level and a smaller increase in real GDP.

The Government Increases Its Expenditures