When would an increase in aggregate demand have a small long-run effect on real GDP?
A) when the aggregate demand curve is flat
B) when the short-run aggregate supply curve is horizontal
C) when the economy is well below potential output
D) when the economy is already at potential output

Question

When would an increase in aggregate demand have a small long-run effect on real GDP?  
A) when the aggregate demand curve is flat 
B) when the short-run aggregate supply curve is horizontal 
C) when the economy is well below potential output 
D) when the economy is already at potential output

Quizplus · Accepted Answer

An increase in aggregate demand has a small long-run effect on real GDP when the economy is already at potential output, as any further increases primarily cause inflation rather than a significant increase in real output.

When Would an Increase in Aggregate Demand Have a Small