When the SRAS curve slopes upward, the actual affect of an increase in real autonomous spending on equilibrium real GDP is smaller than predicted by the multiplier because
A) the price level falls.
B) the price level rises
C) real GDP increases.
D) real GDP decreases.

Question

Quizplus · Accepted Answer

When the SRAS curve slopes upward, it means that the economy is experiencing cost-push inflation. An increase in real autonomous spending will lead to higher prices for inputs such as labor and raw materials, causing the SRAS curve to shift leftward. As a result, the equilibrium real GDP will increase, but by a smaller amount than predicted by the multiplier due to the rising price level. Therefore, the actual effect of an increase in real autonomous spending on equilibrium real GDP is smaller than predicted by the multiplier, and the price level rises.

When the SRAS Curve Slopes Upward, the Actual Affect of an Increase