When an increase in aggregate demand exceeds the increase in aggregate supply
A) real GDP decreases while nominal GDP increases.
B) the price level falls while real GDP increases.
C) nominal GDP decreases and real GDP decreases.
D) the economy will experience inflation as the price level rises.

Question

Quizplus · Accepted Answer

When aggregate demand increases more than aggregate supply, it leads to higher demand for goods and services than what can be produced at current prices, causing prices to rise. This scenario leads to inflation as the overall price level in the economy increases.

When an Increase in Aggregate Demand Exceeds the Increase in Aggregate