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

Question

Quizplus · Accepted Answer

When aggregate demand increases more than expected, it typically leads to an economy operating above its potential GDP, causing real GDP to be greater than potential GDP (A). This increase in demand also puts upward pressure on prices, leading to an increase in the price level (B). Additionally, as firms respond to higher demand by increasing production, they often hire more workers, which results in a decrease in unemployment (C). Therefore, all of the given statements are correct outcomes of an increase in aggregate demand beyond expectations.

Suppose Aggregate Demand Increases by More Than Expected