12.2 Equilibrium in Aggregate Demand and Supply Analysis
AD - AS Equilibrium
-On the graph above,consider a point A at which output is greater than potential output.At this point,________.
A)the inflation rate will rise
B)output will rise
C)potential output will rise
D)the aggregate demand curve will shift to the left
E)none of the above

Question

12.2 Equilibrium in Aggregate Demand and Supply Analysis
AD - AS Equilibrium 
-On the graph above,consider a point A at which output is greater than potential output.At this point,________.
A)the inflation rate will rise 
B)output will rise 
C)potential output will rise 
D)the aggregate demand curve will shift to the left 
E)none of the above

Quizplus · Accepted Answer

When output is greater than potential output, it implies that there is excess demand in the economy. This will lead to firms increasing prices to manage demand, which will result in inflation. Therefore, the correct option is A, the inflation rate will rise. Option B is incorrect because output is already greater than potential output. Option C is incorrect because potential output is the maximum output that can be produced with the given resources and technology, and it is assumed to be fixed in the short run. Option D is incorrect because if the aggregate demand curve shifts to the left, it would lead to a decrease in output and an improvement in the output gap.