If the short-run aggregate supply curve is horizontal, then changes in aggregate demand affect:
A) level of output but not prices.
B) prices but not level of output.
C) both prices and level of output.
D) neither prices nor level of output.

Question

Quizplus · Accepted Answer

When the short-run aggregate supply curve is horizontal, it indicates that the economy can produce more goods and services without increasing prices, thus changes in aggregate demand affect the level of output but not prices.

If the Short-Run Aggregate Supply Curve Is Horizontal, Then Changes