Answer:
an increase in real GDP without much inflation when the economy in on the horizontal portion of the aggregate supply curve.
Explanation:
In order to understand both short-run economic fluctuations and how the economy move from short to long run, we need the aggregate supply and aggregate demand model.
Aggregate supply (AS) refers to the total quantity of output (goods and services) that firms are willing to produce and sell at a given price in an economy at a particular period of time.
Aggregate demand (AD) can be defined as the total quantity of output (final goods and services) that is demanded by consumers at all possible price levels in an economy at a particular time.
On a standard Aggregate demand (AD)-Aggregate supply (AS) curve, the y axis denotes the Price (P) of goods and services while the x axis typically denotes the Output (Q) of final goods and services.
In the short-run, a rightward shift in the aggregate supply (AS) curve causes output to increase and result in a price fall (lower price) while a rightward shift in the aggregate demand (AD) curve also cause output to increase and rise in prices.
The short-run nominal fluctuations basically cause a change in the level of production. In the short-run, as a result of a shift in the aggregate supply; an increase in money consequently to result in increase the level of production (output). Therefore, more goods are produced as a result of the increased output (supply) and more goods would be purchased as a result of their lower prices.
An expansionary gap, also known as the inflationary gap in economics is used to measure the difference between the gross domestic product (GDP) and the current level of real Gross Domestic Products that exists when a country's economy is guaged at a full employment rate.
Hence, aggregate demand and aggregate supply analysis suggests that, in the short run, an expansionary monetary policy will result in an increase in real GDP without much inflation when the economy is on the horizontal portion of the aggregate supply curve.
