A simultaneous rise in aggregate demand and fall in short-run aggregate supply will definitely
A) raise the price level,but there is not enough information to know how Real GDP will change.
B) lower Real GDP,but there is not enough information to know how the price level will change.
C) raise the price level and Real GDP.
D) raise Real GDP,but there is not enough information to know how the price level will change.
E) raise the price level and lower Real GDP.

Question

Quizplus · Accepted Answer

A simultaneous rise in aggregate demand and fall in short-run aggregate supply will result in an increase in both the price level and Real GDP in the short run, as output decreases while prices increase. However, in the long run, the decrease in short-run aggregate supply will lead to an increase in production costs and ultimately cause a decrease in Real GDP. Therefore, we cannot determine the effect on Real GDP without more information.

A Simultaneous Rise in Aggregate Demand and Fall in Short-Run