If the aggregate demand and supply curves intersect in the horizontal range of the aggregate supply curve,an increase in aggregate demand increases
A) the price level but not the total real output.
B) total real output but not the price level.
C) both total real output and the price level.
D) neither total real output nor the price level.
E) total employment while decreasing the price level.

Question

Quizplus · Accepted Answer

In the horizontal range of the aggregate supply curve, the economy is operating at full capacity, meaning that any increase in aggregate demand will only result in an increase in total real output without affecting the price level. This is because there is no room for firms to increase their production levels further, so any increase in demand is met by an increase in production instead of an increase in prices. Therefore, the correct answer is B, which states that an increase in aggregate demand increases total real output but not the price level.

If the Aggregate Demand and Supply Curves Intersect in the Horizontal