Use the following diagram to answer the following questions.

-Refer to Diagram 12-1. Suppose the price level in the above graph is currently P₁. In this instance, the economy would most likely be experiencing:

Question

Use the following diagram to answer the following questions.
 
-Refer to Diagram 12-1. Suppose the price level in the above graph is currently P₁. In this instance, the economy would most likely be experiencing:

Quizplus · Accepted Answer

At price level P₁, the aggregate demand curve intersects with the aggregate supply curve at a level of output lower than potential GDP. This suggests that there is excess demand for goods and services, which may lead to inflationary pressure on prices as consumers compete for scarce goods. Therefore, the correct answer is D.

Use the Following Diagram to Answer the Following Questions