The steeper the short-run aggregate supply curve,the __________ the change in price level and the __________ the change in real Gross Domestic Product for a given shift in the aggregate demand curve.
A)larger; larger
B)larger; smaller
C)smaller; larger
D)smaller; smaller
E)real GDP and the price level are not affected by the shape of the aggregate supply curve

Question

Quizplus · Accepted Answer

A steeper short-run aggregate supply curve indicates that there is less flexibility in adjusting output in response to changes in prices. Therefore, a given shift in the aggregate demand curve will result in a larger change in prices and a smaller change in real GDP. This is consistent with the notion of supply-side shocks, where changes in prices have a more significant impact on output due to limited supply capacity in the short run.

The Steeper the Short-Run Aggregate Supply Curve,the __________ the Change