What will an increase in the bank rate when the SRAS is relatively steep likely lead to?
A)a large drop in real GDP and a large drop in the price level
B)a small drop in real GDP and a large drop in the price level
C)a small drop in real GDP and a small increase in the price level
D)a small increase in real GDP and a large increase in the price level

Question

Quizplus · Accepted Answer

When the SRAS (Short-Run Aggregate Supply) is relatively steep, it indicates that output is less responsive to changes in price level. An increase in the bank rate typically reduces aggregate demand, leading to a small drop in real GDP due to the steepness of SRAS, but a larger drop in the price level as the demand curve shifts leftward.

What Will an Increase in the Bank Rate When the SRAS