Final answer:
An upward-sloping aggregate supply curve will allow an aggregate demand increase to cause inflation, which will reduce the true size of the multiplier.
Step-by-step explanation:
An upward-sloping aggregate supply (AS) curve will allow an aggregate demand (AD) increase to cause inflation. This is because when the AS curve is upward-sloping, an increase in AD will increase both output and price levels. As a result, the overall level of prices in the economy will rise, causing inflation.
The resulting inflation will reduce the true size of the multiplier. The multiplier effect refers to the increase in aggregate demand and output that occurs when there is an initial increase in spending. However, if there is inflation, it erodes the purchasing power of money and reduces the effectiveness of the multiplier effect.