The extent to which a given increase in nominal income is the result of a price level change or a change in real income is primarily determined by
A)the quantity theory of money
B)the equation of exchange
C)the slope of the aggregate demand curve
D)the slope of the short-run aggregate supply curve
E)none of the above

Question

Quizplus · Accepted Answer

The slope of the short-run aggregate supply curve determines the extent to which a given increase in nominal income is the result of a price level change or a change in real income. If the short-run aggregate supply curve is relatively flat, a given increase in nominal income will be primarily the result of a price level change, indicating higher inflation. If the short-run aggregate supply curve is relatively steep, a given increase in nominal income will be primarily the result of a change in real income, indicating higher economic output.

The Extent to Which a Given Increase in Nominal Income