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Which one is the correct answer? What is the best explanation for the slope of the...

Which one is the correct answer?

What is the best explanation for the slope of the Neoclassical zone of the aggregate supply curve?

a. A small increase in aggregate demand when the economy is operating below its potential output will not have much effect on the price level.

b. A small an increase in aggregate demand when the economy is operating at potential output causes the price level to rise, with little or no effect on real output.

c. An increase in aggregate demand causes both real output and the price level to increase.

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Answer #1

Option B.

  • In the neoclassical zone of aggregate supply curve, even if a small increase or decrease in aggregate demand curve will have little or no effect on real output.
  • The real output can be increased by Increasing the aggregate supply and shifting the aggregate supply curve to the right.
  • But in the neo classical zone of aggregate supply curve, a small Increase in aggregate demand can put pressures on price and it can lead to an increase in the price level.
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