Suppose the economy is producing at the natural rate of output.An increase in consumer and business confidence will cause ________ in real GDP in the short run and ________ in the aggregate price level in the short run,everything else held constant.
A)an increase; an increase
B)a decrease; a decrease
C)no change; an increase
D)no change; a decrease

Question

Quizplus · Accepted Answer

An increase in consumer and business confidence will lead to an increase in aggregate demand. The increase in demand will result in an increase in real GDP in the short run. However, in the short run, the economy may not be able to produce goods and services at the increased level of demand, leading to an increase in the aggregate price level. Therefore, the answer is (A) an increase in real GDP; an increase in the aggregate price level in the short run.

Suppose the Economy Is Producing at the Natural Rate of Output.An