Refer to the diagram given below. Suppose an increase in aggregate demand shifts AD₁ to AD₂.At P₁, the amount of output demanded will be: A)equal to the amount of output supplied. B)greater than the amount of output supplied. C)less than the amount of output supplied. D)at the full-employment level of output.

Question

Quizplus · Accepted Answer

An increase in aggregate demand shifts the AD curve to the right, resulting in a higher equilibrium level of output and price level. At the initial equilibrium point P₁, the amount of output demanded and supplied are equal. However, with an increase in aggregate demand, the new equilibrium point will move to the right, to P₂. At this new equilibrium point, the amount of output demanded will be greater than the amount of output supplied. Therefore, the correct answer is B) greater than the amount of output supplied.

Refer to the Diagram Given Below