If the economy reaches the positively sloped portion of the aggregate supply curve, the value of the multiplier increases, as some of the increase in output is absorbed into price increases.

Question

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When the economy reaches the positively sloped portion of the aggregate supply curve, the value of the multiplier actually decreases because as output increases, prices also increase, which can lead to a reduction in the real value of expenditures, dampening the initial increase in aggregate demand.

If the Economy Reaches the Positively Sloped Portion of the Aggregate