In the short-run along the horizontal portion of the aggregate supply curve,an increase in the budget deficit and an expansionary monetary policy would:
A)increase the price level only.
B)increase both the price level and real income.
C)increase real income only.
D)none of the above.

Question

Quizplus · Accepted Answer

During the horizontal portion of the aggregate supply curve, the economy is not at full capacity, meaning that increases in demand (such as those from a larger budget deficit or expansionary monetary policy) can lead to increases in output (real income) without affecting the price level.

In the Short-Run Along the Horizontal Portion of the Aggregate