Holding the level of prices fixed implies that a given increase in aggregate demand
A)will have a smaller effect on real GDP than would be the case if prices were more flexible.
B)will have a larger effect on real GDP than would be the case if prices were more flexible.
C)has the same effect on real GDP as when prices are more flexible.
D)has a smaller effect on nominal GDP than when prices are more flexible.

Question

Quizplus · Accepted Answer

When prices are fixed, an increase in aggregate demand leads to a larger effect on real GDP because output must increase to meet the higher demand, as prices cannot adjust to balance the demand and supply.

Holding the Level of Prices Fixed Implies That a Given