Starting from a situation of full employment, an increase in aggregate demand creates ________ and ________ the price level.
A) a recessionary gap; lowers
B) a recessionary gap; raises
C) a recessionary gap; does not change
D) an inflationary gap; raises
E) an inflationary gap; lowers

Question

Quizplus · Accepted Answer

Starting from a situation of full employment, an increase in aggregate demand typically leads to an inflationary gap, where demand exceeds supply at the current price level, causing prices to rise.

Starting from a Situation of Full Employment, an Increase in Aggregate