Based on the Keynesian theory of the business cycle, if the economy is at its full-employment equilibrium and aggregate demand increases then
A) the price level and real GDP both increase.
B) the price level rises but real GDP remains unchanged.
C) the price level and real GDP both decrease.
D) real GDP decreases and the price level remains unchanged.

Question

Quizplus · Accepted Answer

In the Keynesian theory, an increase in aggregate demand at full employment leads to inflation (an increase in the price level) without an increase in real GDP.

Based on the Keynesian Theory of the Business Cycle, If