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The neoclassical zone sits at the far right of the SRAS curve, where it is nearly vertical and output is at or near potential GDP. In this zone, what does a shift in AD mainly affect, and what is the only way to raise real GDP further?
AAD shifts mainly affect output; only a leftward AD shift can raise GDP
BAD shifts mainly affect the price level; only a rightward AS shift can raise GDP
CAD shifts have no effect on either output or price level in this zone
DAD shifts mainly affect the price level; another AD shift right always raises GDP too
Answer & Solution
Correct answer: B. AD shifts mainly affect the price level; only a rightward AS shift can raise GDP
1. In the neoclassical zone, the SRAS curve is nearly vertical, since inputs are already fully employed.
2. A shift in AD along a near-vertical SRAS mostly moves the intersection vertically, changing the price level a great deal.
3. Because the SRAS curve barely runs sideways here, output barely moves in response to the same AD shift.
4. Since AD shifts cannot pull much more output out of an economy already near capacity, only a rightward shift of AS itself can raise real GDP further.
5. Option D wrongly claims AD can still raise GDP here, which contradicts this near-vertical relationship.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 10 "The Aggregate Demand/Aggregate Supply Model", section 10.6 | Keynes’ Law and Say’s Law in the AD/AS Model_
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