Beginning from the full-employment level of real GDP, an increase in one of the components of the aggregate demand curve will increase the:
A) average level of prices (CPI).
B) unemployment rate.
C) natural level of real GDP.
D) level of investment spending.

Question

Quizplus · Accepted Answer

An increase in one of the components of the aggregate demand curve (such as consumption, investment, government spending, or net exports) from a full-employment level of real GDP typically leads to an increase in the average level of prices, or CPI, due to higher demand in the economy. This is because at full employment, increases in demand tend to push prices up rather than significantly increasing output.

Beginning from the Full-Employment Level of Real GDP, an Increase