In the aggregate demand-output model, if an economy operates above equilibrium GDP, there will be:
A) unplanned inventory depletion.
B) an increase in GDP.
C) an increase in employment.
D) a decrease in GDP.

Question

Quizplus · Accepted Answer

If an economy operates above equilibrium GDP, it means the aggregate demand exceeds the aggregate supply, which will lead to an increase in prices. This increase in prices will eventually lead to a decrease in real GDP as people's buying power decreases. Therefore, the correct answer is option D, a decrease in GDP.

In the Aggregate Demand-Output Model, If an Economy Operates Above