An increase in aggregate supply will:
A)reduce both the price level and real domestic output
B)reduce the price level but increase real domestic output
C)increase both the price level and real domestic output
D)increase the price level but reduce real domestic output

Question

Quizplus · Accepted Answer

When aggregate supply increases, it means that the economy is producing more goods and services. This increase in production leads to a decrease in prices due to more competition among firms. At the same time, the increase in production also leads to an increase in real domestic output, since there is more output being produced for consumers to purchase. Therefore, option B is the correct answer.

An Increase in Aggregate Supply Will