Suppose aggregate demand increases by less than expected. Which of the following describes what will occur?
A) The price level will fall.
B) Real GDP will be more than potential GDP.
C) Real GDP will be less than potential GDP.
D) Both answers A and B are correct.

Question

Quizplus · Accepted Answer

If aggregate demand increases by less than expected, there will be a decrease in output, leading to a situation where real GDP will be less than potential GDP. This is because the aggregate demand is not enough to stimulate economic activity to the level of potential GDP. The price level may remain stable, but it may also fall depending on the specific factors that caused the decrease in aggregate demand. Therefore, option C is the correct answer. Option D is incorrect because option A is not necessarily true in this scenario.

Suppose Aggregate Demand Increases by Less Than Expected