In the intermediate range of the aggregate supply curve, higher aggregate demand will increase:
A) both the price level and real GDP.
B) real GDP without raising the price level.
C) the price level without affecting real GDP.
D) the price level but reduce real GDP.

Question

Quizplus · Accepted Answer

In the intermediate range of the aggregate supply curve, there is still room for some increase in real GDP before the economy reaches full capacity. Therefore, an increase in aggregate demand will lead to both a higher price level and an increase in real GDP. This is because firms can still increase production in response to higher demand without incurring significant cost increases. Thus, both the price level and real GDP will increase in the intermediate range.

In the Intermediate Range of the Aggregate Supply Curve, Higher