Consider the basic AD/AS model with an upward- sloping AS curve. A positive aggregate demand shock will cause
A)the equilibrium point to move rightward along the AS curve.
B)the unemployment rate to remain constant.
C)a movement along the AD curve to the right.
D)a shift to the right in the AS curve.
E)a decrease in the price level.

Question

Quizplus · Accepted Answer

A positive aggregate demand shock will shift the AD curve to the right, causing the equilibrium point to move rightward along the upward-sloping AS curve. This leads to an increase in real output and a higher price level. The unemployment rate may or may not change depending on the location of the new equilibrium point on the AS curve. There is no reason to expect a decrease in the price level. A shift in the AS curve would be caused by a change in factors affecting production costs, not an aggregate demand shock.

Consider the Basic AD/AS Model with an Upward- Sloping AS Curve