Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP falls?
A)SRAS shifted to the right by more than LRAS.
B)AD shifted to the right by more than SRAS.
C)AD shifted to the right by less than SRAS.
D)AD did not shift and SRAS shifted to the left.
E)LRAS shifted leftward and AD shifted rightward.

Question

Quizplus · Accepted Answer

If the Aggregate Demand (AD) does not shift and the Short-Run Aggregate Supply (SRAS) shifts to the left, it can lead to a decrease in the equilibrium level of GDP despite an increase in potential GDP. This is because the leftward shift in SRAS can cause a higher price level and lower output in the short run.

Which of the Following Could Explain Why There Is an Increase