If the Fed expands the money supply,a short-run aggregate supply curve __________ would yield the largest short-run increase in real GDP.
A)that is vertical
B)with a steep slope
C)that coincides with the 45-degree line
D)that is relatively flat
E)that shifts leftward

Question

Quizplus · Accepted Answer

If the Fed expands the money supply, a short-run aggregate supply curve that is relatively flat would yield the largest short-run increase in real GDP. A relatively flat short-run aggregate supply curve indicates that there is excess production capacity in the economy, which means that an increase in aggregate demand can lead to a significant increase in production without pushing up prices by much. Therefore, the economy can experience a larger increase in real GDP in the short run.

If the Fed Expands the Money Supply,a Short-Run Aggregate Supply