If aggregate demand grows only slightly faster than potential GDP, then the economy will
)
A) experience economic growth with high inflation
B) be at a business- cycle peak
C) experience economic growth with low inflation
D) experience recession

Question

Quizplus · Accepted Answer

When aggregate demand grows only slightly faster than potential GDP, the economy will experience economic growth, but with low inflation. This is because the increase in demand is not significant enough to trigger a rise in prices, but is enough to stimulate economic growth. A and D are incorrect because high inflation and recession are not likely outcomes when aggregate demand is only slightly higher than potential GDP. B is incorrect because a business-cycle peak typically refers to a period of strong economic growth and high aggregate demand, not a situation where demand is only slightly higher than potential GDP.

If Aggregate Demand Grows Only Slightly Faster Than Potential GDP