The short-run effects from an increase in aggregate demand will include:
A)An increase in potential output
B)An increase in the current inflation rate
C)A decrease in current output
D)A recessionary gap

Question

Quizplus · Accepted Answer

An increase in aggregate demand leads to an increase in output, which in turn leads to an increase in the demand for goods and services. This can push up prices and lead to inflation in the short run before the economy has time to adjust its productive capacity. Therefore, the correct answer is B, an increase in the current inflation rate.

The Short-Run Effects from an Increase in Aggregate Demand Will