If we observe an increase in real GDP and an increase in the price level after an increase in aggregate demand, we can conclude that
A) the aggregate supply curve is upward sloping.
B) the aggregate supply curve is horizontal.
C) the aggregate supply curve is vertical.
D) the economy is now at full employment.

Question

Quizplus · Accepted Answer

An increase in real GDP and an increase in the price level after an increase in aggregate demand indicates that the aggregate supply curve is upward sloping. This is because as demand increases and pulls prices up, firms are willing to produce more output at higher prices, resulting in an increase in real GDP. However, this increase in output is limited by the availability of resources and productive capacity, which eventually leads to diminishing marginal returns and higher costs of production, causing the upward-sloping AS curve. The economy may or may not be at full employment depending on the position of the AD curve relative to the AS curve.

If We Observe an Increase in Real GDP and an Increase