If an economy is currently operating at its potential level of real GDP,an increase in aggregate demand will

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Quizplus · Accepted Answer

If an economy is already operating at its potential output, any increase in aggregate demand will lead to a higher demand for goods and services. As there is a limited supply of goods and services, the increase in demand will cause the price level to increase. This is known as demand-pull inflation.

If an Economy Is Currently Operating at Its Potential Level