Along the intermediate range of the aggregate supply curve, an increase in the aggregate demand curve will increase:
A) both the price level and real GDP.
B) only real GDP.
C) only the price level.
D) real GDP and reduce the price level.

Question

Quizplus · Accepted Answer

Along the intermediate range of the aggregate supply curve, an increase in aggregate demand will lead to an increase in both the price level and real GDP. This is because the economy is operating below its potential, so an increase in demand will result in higher output (real GDP) and higher prices (inflation) as firms increase production and face higher input costs.

Along the Intermediate Range of the Aggregate Supply Curve, an Increase