If a shift in aggregate demand only affects real Gross Domestic Product (GDP), then the short-run aggregate supply (SRAS) curve must be
A) vertical.
B) upward sloping.
C) horizontal.
D) downward sloping.

Question

Quizplus · Accepted Answer

If a shift in aggregate demand only affects real GDP and not the price level, the SRAS curve must be horizontal. This implies that the economy is in a situation where there are idle resources and output can increase without an increase in prices, typical of a liquidity trap or deep recession scenario.

If a Shift in Aggregate Demand Only Affects Real Gross