If the economy is initially at full employment,an increase in aggregate demand will result in

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Quizplus · Accepted Answer

An increase in aggregate demand will cause an increase in prices and output in the short run. However, since the economy is initially at full employment, there are no idle resources to increase the production of goods and services. As demand outstrips supply, firms will raise their prices, leading to demand-pull inflation.

If the Economy Is Initially at Full Employment,an Increase in Aggregate