question archive A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will a
A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will a
Subject:EconomicsPrice:2.88 Bought3
A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will
a. Reduce real output by more than the price level
b. Reduce the price level by more than real output
c. Increase real output by more than the price level
d. Increase the price level by more than real output
Choose an option and explain.
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The answer is: D (Increase the price level by more than real output)
A rightward shift in the of the AD curve in the very steep part of the short-run AS curve will lead to an increase in price level more than real output as greater the steepness the more is the inelasticity. Therefore in an environment where the supply curve is relatively inelastic, as seen in the short-run AS curve, a rightward shift of the AD curve will lead to an increase in price level more than real output.
