Suppose an increase in investment spending results in an increase in equilibrium real GDP and a rise in the equilibrium price level. This implies that the aggregate supply curve must be vertical.

Question

Quizplus · Accepted Answer

If an increase in investment spending leads to an increase in both equilibrium real GDP and the equilibrium price level, it suggests that the aggregate supply curve is upward sloping, not vertical. Vertical aggregate supply curve implies that changes in aggregate demand do not affect the equilibrium price level, which is not the case here.

Suppose an Increase in Investment Spending Results in an Increase