Starting from a situation of full employment,an increase in aggregate demand creates ________ and ________ the price level.
A)an inflationary gap;raises
B)a recessionary gap;lowers
C)a recessionary gap;raises
D)an inflationary gap;lowers
E)a recessionary gap;does not change

Question

Quizplus · Accepted Answer

An increase in aggregate demand creates an inflationary gap, which is the amount by which aggregate demand exceeds potential GDP at full employment. This results in a shortage of goods and services in the economy, leading to upward pressure on prices. Therefore, the price level is raised.

Starting from a Situation of Full Employment,an Increase in Aggregate