Question

Suppose a government adopts a stimulus program that increases aggregate demand. If overall output increases only slightly but there is a sudden rise in inflation, then the economy was in the _____ zone before the stimulus program was put into effect.

Answer 1

Neoclassical Zone

Step-by-step explanation:

In the Neoclassical Zone, the equilibrium level of real GDP is at or near the potential GDP. This results in a low cyclical unemployment.