Suppose that aggregate demand increases along the upward sloping portion of the aggregate supply curve. What is the result?
A) Nominal GDP and real GDP decrease by the same amount.
B) Nominal GDP and real GDP increase by the same amount.
C) Nominal GDP increases more than real GDP increases.
D) Real GDP increases more than nominal GDP increases.

Question

Quizplus · Accepted Answer

When aggregate demand increases along the upward sloping portion of the aggregate supply curve, it indicates that the economy is experiencing higher demand for goods and services. This leads to an increase in the prices of goods and services, which causes nominal GDP (which measures the value of all goods and services produced at current prices) to increase. However, because some of this increase is due to higher prices rather than a larger quantity of goods and services produced, real GDP (which measures the value of all goods and services produced at constant prices) increases by a smaller amount. Therefore, nominal GDP increases more than real GDP.

Suppose That Aggregate Demand Increases Along the Upward Sloping Portion