Suppose the economy is initially in equilibrium where real GDP equals potential GDP and the inflation rate is at the target rate.Other things equal,a housing boom will cause aggregate expenditures to increase,which will result in
A) an increase in aggregate demand and an increase in the inflation rate.
B) an increase in aggregate supply and an increase in the inflation rate.
C) an increase in aggregate demand and a decrease in the inflation rate.
D) an increase in aggregate supply and a decrease in the inflation rate.

Question

Quizplus · Accepted Answer

A housing boom will increase demand for housing and lead to increased investment, which would shift the aggregate demand curve to the right. This would cause an increase in both real GDP and the price level, leading to an increase in the inflation rate.

Suppose the Economy Is Initially in Equilibrium Where Real GDP