If the supply curve is always horizontal in the short run until potential output is obtained:

Question

Quizplus · Accepted Answer

A horizontal supply curve implies that any increase in aggregate demand (AD) will lead to an increase in output without affecting the price level, up to the point of potential output. This contradicts option A, as increases in AD would not be inflationary until potential output is reached. It also suggests that, in the short run, output is determined by AD, making B incorrect. Lastly, Keynesian theory actually supports the idea that in the short run, output can be influenced by AD, especially when there is slack in the economy, making C incorrect as well.

If the Supply Curve Is Always Horizontal in the Short