Exhibit 14-8 Aggregate demand and supply

-In Exhibit 14-8,if aggregate demand shifts from AD₃ to AD₄,real GDP will:
A) rise from $7.0 to $8.0, and the price level will rise from 120 to 140.
B) rise from $7.0 to $8.0, and the price level will rise from 120 to 170.
C) rise from $7.0 to $8.0, and the price level will rise from 100 to 140.
D) not change, and the price level will rise from 120 to 140.
E) rise from $4.0 to $8.0, and the price level will rise from 120 to 140.

Question

Exhibit 14-8 Aggregate demand and supply
 
-In Exhibit 14-8,if aggregate demand shifts from AD₃ to AD₄,real GDP will:
A) rise from $7.0 to $8.0, and the price level will rise from 120 to 140. 
B) rise from $7.0 to $8.0, and the price level will rise from 120 to 170. 
C) rise from $7.0 to $8.0, and the price level will rise from 100 to 140. 
D) not change, and the price level will rise from 120 to 140. 
E) rise from $4.0 to $8.0, and the price level will rise from 120 to 140.

Quizplus · Accepted Answer

As aggregate demand shifts from AD₃ to AD₄, real GDP will rise from $7.0 to $8.0, and the price level will rise from 120 to 140. This is because the increase in aggregate demand causes an increase in both output and prices in the short run. Therefore, the best choice is A. The other choices are incorrect because they either have incorrect values for real GDP or the price level, or they incorporate long-run adjustments that do not apply in the short run.

Exhibit 14-8 Aggregate Demand and Supply