In the intermediate range of the aggregate supply curve, if government spending increases caused the aggregate demand curve to shift outwards, which of the following is most likely to occur?
A) The price level and real GDP will both rise.
B) The price level will not change, but real GDP will increase.
C) The price level will rise, but real GDP will not change.
D) Both the price level and real GDP will not change.

Question

Quizplus · Accepted Answer

In the intermediate range of the aggregate supply curve, an increase in government spending would shift the aggregate demand curve outwards. This would lead to both an increase in the price level and real GDP due to the partial responsiveness of output to changes in demand. Therefore, choice A is the correct answer.

In the Intermediate Range of the Aggregate Supply Curve, If