11.4 Consequences of Changes in Aggregate Demand

-Refer to the above figure. An increase in aggregate demand beyond real Gross Domestic Product (GDP)level Y₁ would result in
A)higher real GDP but not a higher price level.
B)a lower price level but no change in real GDP.
C)a higher price level but no change in real GDP.
D)a lower price level and an increases in real GDP.

Question

11.4 Consequences of Changes in Aggregate Demand
 
-Refer to the above figure. An increase in aggregate demand beyond real Gross Domestic Product (GDP)level Y₁ would result in
A)higher real GDP but not a higher price level. 
B)a lower price level but no change in real GDP. 
C)a higher price level but no change in real GDP. 
D)a lower price level and an increases in real GDP.

Quizplus · Accepted Answer

According to the graph, an increase in aggregate demand beyond real GDP level Y₁ would result in a higher price level but no change in real GDP. This is because the economy has already reached its full capacity at Y₁, so any further increase in demand cannot be met by an increase in production, leading to higher prices instead.