Suppose an increase in government spending stimulates real GDP without affecting the price level.What is the relevant range of the aggregate supply curve in this case?
A) The classical range.
B) The intermediate range.
C) The Keynesian range.
D) The monetarist range.

Question

Quizplus · Accepted Answer

In this case, where an increase in government spending stimulates real GDP without affecting the price level, the relevant range of the aggregate supply curve would be the Keynesian range. The Keynesian range is characterized by a state of the economy where the aggregate supply curve is horizontal, indicating that changes in aggregate demand solely impact output while leaving the price level constant. This is because in the Keynesian range, there is a certain level of idle capacity that can be employed to produce more output without exerting pressure on prices. Thus, an increase in government spending can only lead to more output without affecting the price level.

Suppose an Increase in Government Spending Stimulates Real GDP Without