When the short-run aggregate supply curve is steep,then for a given increase in aggregate demand:
A)the increase in real GDP will be relatively small and the increase in the price level will be relatively large.
B)the increase in real GDP will be relatively large and the increase in the price level will be relatively small.
C)the increase in both real GDP and the price level will be large.
D)the increase in both real GDP and the price level will be small.
E)the decrease in real GDP will be larger than the decrease in the price level.

Question

Quizplus · Accepted Answer

When the short-run aggregate supply curve is steep, it means that the economy's ability to produce more output in response to an increase in demand is limited. Therefore, for a given increase in aggregate demand, the increase in real GDP will be relatively small because the economy is already operating at or close to its full capacity. On the other hand, the increase in the price level will be relatively large because firms will have to bid up the prices of inputs (e.g. wages, raw materials) in order to increase production. Thus, choice A is the correct answer.

When the Short-Run Aggregate Supply Curve Is Steep,then for a Given