Consider the following statement: "If the government attempts to raise employment through increased fiscal spending, all it will do is drive up the price level." The proponent of this statement assumes that the aggregate
A) demand curve is a horizontal line.
B) supply curve is a vertical line.
C) supply curve is upward-sloping.
D) supply curve is downward-sloping.
E) supply curve is flat.

Question

Quizplus · Accepted Answer

The statement assumes that the aggregate supply curve is vertical, implying that the economy is at full capacity. In this scenario, any increase in aggregate demand (such as through increased fiscal spending) would not increase output (employment) but would instead only lead to higher prices (inflation).

Consider the Following Statement: "If the Government Attempts to Raise