Suppose that the economy is at full employment and aggregate demand increases by more than it is anticipated to increase. Other things remaining the same,
A) long-run aggregate supply decreases.
B) real GDP remains at potential GDP.
C) real GDP increases above potential GDP.
D) real GDP decreases below potential GDP.

Question

Quizplus · Accepted Answer

When aggregate demand increases more than anticipated in an economy that is already at full employment, real GDP increases above potential GDP. This is because the increased demand leads to higher production levels as firms attempt to meet the demand, temporarily pushing the economy beyond its long-run sustainable output.

Suppose That the Economy Is at Full Employment and Aggregate