Exhibit 10-8
-In the short run,if the economy is operating below potential output and if the aggregate supply curve shifts outward,then the price level will
A)decrease and output will increase
B)increase and output will decrease
C)decrease and output will decrease
D)increase and output will increase
E)increase and output will remain unchanged

Question

Exhibit 10-8 
-In the short run,if the economy is operating below potential output and if the aggregate supply curve shifts outward,then the price level will
A)decrease and output will increase 
B)increase and output will decrease 
C)decrease and output will decrease 
D)increase and output will increase 
E)increase and output will remain unchanged

Quizplus · Accepted Answer

If the aggregate supply curve shifts outward while the economy is operating below potential output, then the price level will decrease and output will increase. This is because the outward shift in aggregate supply means that firms are able to produce more output at every given price level. As a result, prices will decrease and output will increase in order to reach equilibrium at the new potential output level.

Exhibit 10-8 -In the Short Run,if the Economy Is Operating Below Potential