How does the shape of the aggregate supply curve affect macroeconomic analysis and policymaking? Illustrate your answer with the appropriate graphs.
What will be an ideal response?
If the aggregate supply curve is relatively flat, as depicted in Figure 31-3 , expansionary fiscal or monetary policy can buy large increases in real GDP without significant inflationary costs. Conversely, contractionary policy will cause significant losses of income and employment without much reduction of inflation. If the aggregate supply curve is relatively steep expansionary fiscal or monetary policy will generate significant inflation without the benefit of large increases in real GDP or employment. Conversely, contractionary policy can achieve significant reductions in inflation without causing large reductions of real GDP or large increases in unemployment.
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The cost of a variable input, such as the wage paid to workers, decreases. This decrease shifts the
A) total fixed cost curve downward. B) marginal product of labor curve downward. C) average variable cost curve downward. D) marginal product of labor curve upward.
With free trade between China and the United States, the winners are ___________ and the losers are _______
A. U.S. consumers of U.S. imports; U.S. producers of the U.S. import good B. China's consumers of China's imports; China's producers of its export good C. U.S. producers of the U.S. export good; U.S. consumers of U.S. imports D. China's consumers of China's export good; China's producers of its imported good