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

When the Short-Run Aggregate Supply (SAS) curve is steeper, it indicates that the economy is closer to its full capacity. Therefore, increases in government expenditures are more likely to result in higher price levels (inflation) rather than significant increases in real GDP. This is because there is less slack in the economy to absorb the increased demand without causing prices to rise.

The Government Increases Its Expenditures