When an increase in aggregate demand exceeds the increase in aggregate supply,
A) the price level falls while real GDP increases.
B) real GDP decreases while nominal GDP increases.
C) nominal GDP decreases and real GDP decreases.
D) the economy will experience inflation as the price level rises.

Question

Quizplus · Accepted Answer

When aggregate demand exceeds aggregate supply, it creates a situation of excess demand in the economy, leading to an increase in prices of goods and services. This results in inflation and a rise in the price level. Hence, option D is the correct answer.

When an Increase in Aggregate Demand Exceeds the Increase in Aggregate