Question

If AD is very flat and AS shifts to the right, then __________.

Group of answer choices

prices rise a lot, and output falls a little

prices fall a little, and output rises a lot

prices rise a little, and output falls a lot

prices fall a lot, and output falls a little

If AD is very flat and AS shifts to the right, then __________.

Group of answer choices

prices rise a lot, and output falls a little

prices fall a little, and output rises a lot

prices rise a little, and output falls a lot

prices fall a lot, and output falls a little

Answer 1

Very flat AD curve means that a price is changing very slowly and small decrease in price will result in very high increase in Aggregate quantity demand and vice versa(Note we have P on vertical axis and Output on horizontal axis).

Now AS shift to the right. This will result in decrease in price level and as AD curve is very flat. This rightward shift on AS curve will result in small decrease in price level. This decrease in price level will result in huge increase in Aggregate output demand and thus Equilibroim price level will decrease very less and Equilibrium Output will increase a lot.

Hence, the correct answer is (b) prices fall a little, and output rises a lot.