An increase in AD will primarily increase output when the economy is on the flat part of the AS curve.

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Quizplus · Accepted Answer

This is because on the flat part of the AS curve (i.e. in the Keynesian range), an increase in AD will lead to an increase in output without causing significant inflationary pressure. On the other hand, on the steep part of the AS curve (i.e. in the classical range), an increase in AD may lead to higher prices and inflation without a significant increase in output.

An Increase in AD Will Primarily Increase Output When the Economy