Which of the following would result if the price level were below the equilibrium level?
A)Aggregate demand would increase.
B)Aggregate supply would decrease.
C)Consumers would bid prices up by competing for goods currently in shortage.
D)Shortages would force sellers to lower prices in order to increase aggregate quantity demanded.

Question

Quizplus · Accepted Answer

If the price level is below the equilibrium level, there will be a shortage of goods and services. This means that consumers will bid prices up by competing for the limited supply. This will eventually lead to an increase in prices (demand-pull inflation) until the equilibrium price level is reached. Aggregate demand would increase only after the equilibrium price level is reached. Aggregate supply would decrease if there is a decrease in production capabilities or availability of resources, and shortages would force sellers to raise prices to decrease aggregate quantity demanded. Therefore, the correct answer is C.

Which of the Following Would Result If the Price Level