-Refer to the above figure. An increase in aggregate demand between real Gross Domestic Product (GDP) levels Y0 and Y1
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

-Refer to the above figure. An increase in aggregate demand between real Gross Domestic Product (GDP) levels Y0 and Y1
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

An increase in aggregate demand in the range between Y0 and Y1, where the economy is already at or near full capacity, typically leads to inflation because demand exceeds supply, pushing prices up.

-Refer to the Above Figure