If both aggregate demand and short-run aggregate supply increase at the same time,
A) the price level increases, but the change in equilibrium income is unknown.
B) both the price level and equilibrium income increase.
C) both the price level and equilibrium income decline.
D) equilibrium income increases, but the change in the price level is unknown.
E) the change in both equilibrium income and the price level is ambiguous.

Question

Quizplus · Accepted Answer

When both aggregate demand and short-run aggregate supply increase, equilibrium income will increase due to higher output. However, the change in the price level is uncertain because the increase in demand tends to raise prices, while the increase in supply tends to lower them.

If Both Aggregate Demand and Short-Run Aggregate Supply Increase at the Same