What pattern would you observe in an economy in which aggregate demand is increasing but in which long-run aggregate supply remained the same?
A) secular deflation
B) inflation accompanied by no change in real GDP
C) inflation accompanied by declines in real GDP
D) a decline in consumption spending

Question

Quizplus · Accepted Answer

With increasing aggregate demand and no change in long-run aggregate supply, there will be upward pressure on prices leading to inflation. However, since there is no increase in the capacity of the economy to produce goods and services, real GDP will remain the same. Therefore, option B - inflation accompanied by no change in real GDP - is the correct choice. The other options are unlikely outcomes in this scenario.

What Pattern Would You Observe in an Economy in Which