Figure 8-1
-According to Figure 8-1,an increase in aggregate demand between real GDP levels Q₀ and Q₁
A)would most likely result in some inflation.
B)would not increase output since the economy is already working at full capacity.
C)would have no effect on the price level.
D)would cause price levels to fall.

Question

Figure 8-1 
-According to Figure 8-1,an increase in aggregate demand between real GDP levels Q₀ and Q₁
A)would most likely result in some inflation. 
B)would not increase output since the economy is already working at full capacity. 
C)would have no effect on the price level. 
D)would cause price levels to fall.

Quizplus · Accepted Answer

According to the figure, an increase in aggregate demand leads to a shift of the AD curve from AD₀ to AD₁, resulting in an increase in both real GDP and the price level. Therefore, an increase in aggregate demand between real GDP levels Q₀ and Q₁ would most likely result in some inflation (choice A). B is incorrect because the economy is not at full capacity at Q₀, but below it. C and D are also incorrect because an increase in aggregate demand leads to an increase in the price level.

Figure 8-1 -According to Figure 8-1,an Increase in Aggregate Demand Between Real