If the economy is operating on the relatively vertical segment of the aggregate supply curve, an increase in aggregate demand causes a small change in the ________ and a big change in ________.
A) aggregate demand; aggregate supply
B) aggregate supply; aggregate demand
C) output; price level
D) price level; output

Question

Quizplus · Accepted Answer

When the economy is operating on the relatively vertical segment of the aggregate supply curve, it indicates that it is near or at full capacity. In this scenario, an increase in aggregate demand will not significantly increase output because the economy is already producing near its maximum. Instead, the increase in demand primarily causes prices to rise, leading to a small change in output and a big change in the price level.

If the Economy Is Operating on the Relatively Vertical Segment