In the simple Keynesian model,a rightward shift in the aggregate demand curve __________ result in a change in the price level when the economy is in the horizontal segment of the AS curve and ___________ result in a change in the price level if the economy is in the vertical segment of the AS curve.
A) will not; will
B) will not; will not
C) will; will not
D) will; will

Question

Quizplus · Accepted Answer

In the horizontal segment of the AS curve, the economy is experiencing a recessionary gap with unused resources, so an increase in aggregate demand will only increase output without changing the price level. In contrast, in the vertical segment of the AS curve, the economy is at full employment with no spare capacity, so any increase in demand will lead to higher prices but not more output.

In the Simple Keynesian Model,a Rightward Shift in the Aggregate