Along the classical or vertical range of the aggregate supply curve, an increase in the aggregate demand curve will increase:
A) both the price level and real GDP.
B) only real GDP.
C) only the price level.
D) real GDP and reduce the price level.

Question

Quizplus · Accepted Answer

In the classical or vertical range of the aggregate supply curve, the economy is at or near full employment, meaning output (real GDP) cannot increase significantly. Therefore, an increase in aggregate demand primarily raises the price level rather than real GDP.

Along the Classical or Vertical Range of the Aggregate Supply