If the quantity of real GDP demanded is greater than the quantity of real GDP supplied,then
A)the economy must be producing at potential GDP.
B)the price level falls and firms decrease production.
C)the price level rises and firms increase production.
D)the price level falls to restore the macroeconomic equilibrium.
E)aggregate demand changes to restore equilibrium.

Question

Quizplus · Accepted Answer

If the quantity of real GDP demanded is greater than the quantity of real GDP supplied, it implies that there is a shortage in the market. To clear this shortage, firms will increase prices, anticipating higher profits, and increase production to meet the demand. This will continue until the quantity of real GDP supplied equals the quantity demanded, establishing a new equilibrium. Therefore, the price level rises and firms increase production.

If the Quantity of Real GDP Demanded Is Greater Than