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    short-run aggregate supply curve

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    2. (The Multiplier and the Time Horizon) Explain how the steepness of the short-run aggregate supply curve affects the government's ability to use fiscal policy to change real GDP.

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    If the aggregate supply curve is very steep, it implies that the economy is close to the full employment situation. Because the vertical aggregate supply curve implies the situation of full employment. At this situation, when the government implements expansionary fiscal policies, then initially the aggregate demand curve will shift to right. But, when the aggregate supply curve is very steep, the increase in AD would result in greater increase in prices ...

    Solution Summary

    Multiplier and the Time Horizon are applied.