Consider the basic AD/AS model with an upward-sloping AS curve.A positive aggregate demand shock will initially cause
A)a decrease in the price level.
B)the equilibrium point to move rightward along the AS curve.
C)a movement along the AD curve to the right.
D)a shift to the right in the AS curve.
E)the unemployment rate to remain constant.

Question

Quizplus · Accepted Answer

A positive aggregate demand shock will increase both output and prices. The initial effect will be a movement along the upward-sloping AS curve as prices increase in response to the increase in demand. This will lead to higher output and higher prices, resulting in a new equilibrium point to the right along the AS curve. Therefore, choice B is the correct answer.

Consider the Basic AD/AS Model with an Upward-Sloping AS Curve