If the AD curve is vertical, a positive cost shock will cause ________ in output and ________ in the price level.
A) no change; no change
B) a decrease; an increase
C) no change; an increase
D) a decrease; no change

Question

Quizplus · Accepted Answer

When the AD (Aggregate Demand) curve is vertical, it implies that changes in the price level do not affect the quantity of goods and services demanded. Therefore, a positive cost shock, which increases production costs, would not change the output level (since the quantity demanded is unaffected by price changes in this scenario) but would lead to an increase in the price level as producers pass on the higher costs to consumers.

If the AD Curve Is Vertical, a Positive Cost Shock