Suppose the economy is on the intermediate range of the aggregate supply curve. Which of the following would reduce both real GDP and the price level?
A) a decrease in aggregate supply
B) an increase in aggregate supply
C) a decrease in aggregate demand
D) an increase in aggregate demand

Question

Quizplus · Accepted Answer

A decrease in aggregate demand would shift the aggregate demand curve to the left, reducing both real GDP and the price level. A decrease in aggregate supply (Choice A) would only increase the price level while decreasing real GDP, and an increase in aggregate supply (Choice B) would increase real GDP while decreasing the price level. An increase in aggregate demand (Choice D) would increase both real GDP and the price level.

Suppose the Economy Is on the Intermediate Range of the Aggregate