Suppose that an economy is operating at less than full employment. An increase in AD will result in:
A) an increase in aggregate output and perhaps a decrease in the general price level.
B) an increase in the general price level and perhaps a decrease in aggregate output.
C) an increase in aggregate output and perhaps an increase in the general price level.
D) a decrease in the general price level and perhaps a decrease in aggregate output.

Question

Quizplus · Accepted Answer

When an economy is operating below full employment, an increase in aggregate demand (AD) typically leads to an increase in aggregate output as firms produce more to meet the higher demand. This can also lead to an increase in the general price level due to higher demand for goods and services, though the extent of price level changes can depend on the slope of the aggregate supply curve.

Suppose That an Economy Is Operating at Less Than Full