Economic growth will occur and the price level will be constant when the increase in aggregate demand
A) exactly equals the increase in long- run aggregate supply.
B) is accompanied by a decrease in short- run aggregate supply.
C) is more than the increase in long- run aggregate supply.
D) is less than the increase in long- run aggregate supply.

Question

Quizplus · Accepted Answer

When the increase in aggregate demand exactly equals the increase in long-run aggregate supply, the economy will experience economic growth without an increase in the price level. This is because the increase in aggregate demand will only result in an increase in output without putting pressure on prices due to the increase in the long-run aggregate supply. If the increase in aggregate demand is more than the increase in long-run aggregate supply, it will result in inflation (an increase in the price level). If the increase in aggregate demand is less than the increase in long-run aggregate supply, it will result in a decrease in the price level. If there is a decrease in short-run aggregate supply, it will result in an increase in the price level regardless of the increase in aggregate demand.

Economic Growth Will Occur and the Price Level Will Be