What is the effect of the multiplier when aggregate demand increases and there is a large increase in the price level? What happens when there only is a small increase in the price level?

What will be an ideal response?

The multiplier effect is weakened with price level changes. In the vertical range of aggregate supply, an increase in aggregate demand only produces in increase in the price level but no increase in real output. In the intermediate range, the increase in aggregate demand raises the price level and real output, but real output does not increase by as much as it would have if there had been no price level increase (as would be the case in the horizontal range). The conclusion is that the more the price level increases, the less effect any increase in aggregate demand will have in increasing real GDP.