If the economy is operating at a less-than-full employment level,an increase in aggregate demand may result in an increase in the price level as well as an increase in the level of employment.

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When an economy is operating at a less-than-full employment level, an increase in aggregate demand can lead to an increase in employment as firms increase production to meet the higher demand. However, if the supply of goods and services does not keep pace with the increase in demand, there may be upward pressure on prices. This is known as demand-pull inflation, and can occur when there is still slack in the labor market.

If the Economy Is Operating at a Less-Than-Full Employment Level,an