A decrease in aggregate supply will tend to cause the price level to:
A) rise and GDP to fall.
B) rise and GDP to rise.
C) rise and the unemployment rate to fall.
D) fall and GDP to rise.

Question

Quizplus · Accepted Answer

A decrease in aggregate supply means that firms are producing less output which causes a decrease in real GDP. At the same time, with less output being produced, the demand for goods and services increases causing the price level to rise. Therefore, the correct choice is A - rise in price level and fall in GDP.

A Decrease in Aggregate Supply Will Tend to Cause the Price