An increase in aggregate demand is harmful because
A) workers with sticky wages are paying more for goods and services.
B) firms have sticky input prices and earn less profit.
C) unemployment rises.
D) output has risen above the full-employment level.
E) wages will have to fall in the long run.

Question

Quizplus · Accepted Answer

An increase in aggregate demand can lead to higher prices for goods and services, which can be harmful to workers with sticky wages because their wages do not immediately adjust to the higher price level, reducing their real purchasing power.

An Increase in Aggregate Demand Is Harmful Because