If aggregate demand increases and aggregate supply decreases, the price level
A) will decrease, but real output may increase, decrease, or remain unchanged.
B) will increase, but real output may increase, decrease, or remain unchanged.
C) and real output will both increase.
D) and real output will both decrease.

Question

Quizplus · Accepted Answer

With an increase in aggregate demand and decrease in aggregate supply, there will be upward pressure on the price level as demand outstrips supply. Real output may increase, decrease, or remain unchanged depending on the extent of the shifts in aggregate demand and supply. Therefore, the correct choice is option B, which states that price level will increase, but real output may increase, decrease, or remain unchanged.

If Aggregate Demand Increases and Aggregate Supply Decreases, the Price