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

When the short-run aggregate supply curve is steep, it indicates that the economy is operating near its capacity. Therefore, an increase in aggregate demand (due to a decrease in the federal funds rate) is more likely to result in a significant increase in the price level rather than a substantial increase in real GDP. This is because the economy has less room to increase output without causing inflation.

If the Aggregate Demand Curve Shifts Rightward Following a Decrease