What sequence of events results from an increase in aggregate demand?

Question

Quizplus · Accepted Answer

An increase in aggregate demand will cause an increase in both output and prices in the short run. Firms will respond to the increased demand by increasing output and employment, leading to a decline in inventories. As output increases, firms may also increase prices to maintain profit margins, leading to a rise in the price level. Therefore, the correct sequence of events is a rise in the price level, a decline in inventories, and an increase in output and employment.

What Sequence of Events Results from an Increase in Aggregate