An increase in AD will primarily increase the price level when the economy is on the steep part of the AS curve.

Question

Quizplus · Accepted Answer

When the economy is on the steep part of the AS curve, there is little spare capacity and any increase in AD will mainly result in a rise in the price level rather than an increase in real output. Therefore, an increase in AD will primarily increase the price level when the economy is on the steep part of the AS curve.

An Increase in AD Will Primarily Increase the Price Level