Answer to Question #183316 in Macroeconomics for Wakeel Hussain

Question

If aggregate supply is vertical, what role does aggregate demand play in determining output? In determining the price level?

Answer 1

If aggregate supply is vertical (fixed), than aggregate demand does not affect the quantity of output, instead, aggregate demand can only cause inflationary changes in the price level; excess demand over fixed supply is likely to trigger a rise in price of the commodity in question.