If the economy is close to full employment,what will be the result of an increase in aggregate demand?

Question

Quizplus · Accepted Answer

If the economy is close to full employment, an increase in aggregate demand will have a larger impact on prices than on Real GDP. This is because when the economy is close to full employment, it may be difficult to increase production to meet the higher demand. As a result, businesses may have to increase prices to ration the limited supply, which in turn can lead to inflation. Therefore, the price level will increase a lot, while the increase in Real GDP will be limited.

If the Economy Is Close to Full Employment,what Will Be