Question

A small increase in output that causes a proportionately large increase in the price level indicates that the economy is operating ________.
a. on the Keynesian zone of the aggregate supply curve.



b. on the neoclassical zone of the aggregate supply curve.



c. between the Keynesian and neoclassical zones of the aggregate supply curve.

Answer 1

Answer:

b. on the neoclassical zone of the aggregate supply curve.

Explanation:

An increase in the input prices will shift the supply curve upwards.

This will have larger effect in the neoclassical zone of the supply curve

Because the keynesian zone is in recession and most likely, deflation the price level will not rise as there is not enought demand to met the price.

In the neoclassical zone, he economy is near the potencial GDP thus, if an input price increase the  supply curve shifting left- upwards inceasing the price levels.