When would an increase in aggregate demand have the greatest short-run effect on real output?
A) when the aggregate demand curve is horizontal
B) when the aggregate demand curve is vertical
C) when the short-run aggregate supply curve is vertical
D) when the short-run aggregate supply curve is horizontal

Question

When would an increase in aggregate demand have the greatest short-run effect on real output?  
A) when the aggregate demand curve is horizontal 
B) when the aggregate demand curve is vertical 
C) when the short-run aggregate supply curve is vertical 
D) when the short-run aggregate supply curve is horizontal

Quizplus · Accepted Answer

When the short-run aggregate supply curve is horizontal, it means that the economy is operating at full employment and any increase in aggregate demand will result in an increase in real output without causing prices to rise significantly. In this situation, the short-run effect on real output would be the greatest.

When Would an Increase in Aggregate Demand Have the Greatest