A positive demand shock may
A) cause an economy to operate at a point above potential GDP in the short run
B) increase potential output
C) be caused by relatively low employment levels
D) cause the price level to fall
E) be offset by falling wage rates

Question

Quizplus · Accepted Answer

A positive demand shock will increase aggregate demand, leading to higher output and prices in the short run. This may cause an economy to operate at a point above potential GDP in the short run. However, it does not necessarily increase potential output or lead to falling prices or wages.

A Positive Demand Shock May