Consider the AD/AS macro model.Suppose there is an increase in aggregate demand and,simultaneously,a decrease in aggregate supply.The result will be a
A)rise in real GDP but price level changes will be indeterminate.
B)rise in real GDP and a rise in the price level.
C)rise in real GDP and a fall in the price level.
D)an indeterminate change in real GDP and a rise in the price level.
E)an indeterminate change in real GDP and a fall in the price level.

Question

Quizplus · Accepted Answer

If there is an increase in aggregate demand and a decrease in aggregate supply, it would lead to an increase in the price level. However, the effect on real GDP is uncertain as it depends on the magnitude of the increase in aggregate demand and the decrease in aggregate supply. Therefore, the change in real GDP would be indeterminate.

Consider the AD/AS Macro Model