An increase in aggregate demand when the economy is operating at full capacity is likely to result in
A) an increase in both output and the overall price level.
B) an increase in output but no increase in the overall price level.
C) an increase in the overall price level but no increase in output.
D) no increase in either output or the overall price level.

Question

Quizplus · Accepted Answer

When the economy is operating at full capacity, an increase in aggregate demand leads to an increase in the overall price level due to limited supply, but there is no increase in output as the economy is already at full capacity.

An Increase in Aggregate Demand When the Economy Is Operating