In the short run, suppose the economy is operating below potential output and the aggregate supply curve shifts outward.What will be the effects on price level and output?
A) Price level will decrease, and output will increase.
B) Price level will decrease, and output will decrease.
C) Price level will increase, and output will increase.
D) Price level will increase, and output will decrease.

Question

In the short run, suppose the economy is operating below potential output and the aggregate supply curve shifts outward.What will be the effects on price level and output?  
A) Price level will decrease, and output will increase. 
B) Price level will decrease, and output will decrease. 
C) Price level will increase, and output will increase. 
D) Price level will increase, and output will decrease.

Quizplus · Accepted Answer

When the aggregate supply curve shifts outward in the short run, it indicates an increase in the total supply of goods and services in the economy. This leads to a decrease in the price level due to the higher availability of goods and services, and an increase in output as the economy moves closer to or reaches its potential output.

In the Short Run, Suppose the Economy Is Operating Below