When the AD curve is relatively flat,
A) only fiscal policy can be used to increase output.
B) only monetary policy can be used to increase output.
C) both fiscal policy and monetary policy can be used to increase output.
D) neither fiscal policy nor monetary policy can be used to increase output.

Question

Quizplus · Accepted Answer

When the AD curve is relatively flat, both fiscal and monetary policy can be used to increase output. Fiscal policy can involve government spending increases or tax cuts to increase aggregate demand, while monetary policy can involve reducing interest rates to encourage borrowing and spending. The relatively flat AD curve means that changes in aggregate demand are more sensitive to changes in policy, making both fiscal and monetary policy tools effective at increasing output.

When the AD Curve Is Relatively Flat