Consider the above figure. If the aggregate demand curve rose from AD1 to AD3, our nation would be experiencing
A) an inflationary gap.
B) a recessionary gap.
C) unemployment.
D) falling prices.

Question

Quizplus · Accepted Answer

When the aggregate demand curve shifts to the right from AD1 to AD3, it means that there is an increase in aggregate demand, leading to an increase in real GDP and the price level. This situation is known as an inflationary gap, where aggregate demand exceeds potential output, and there is upward pressure on prices.

Consider the Above Figure