An increase in aggregate demand when the economy is operating at ________ is likely to result in an increase in the overall price level and ________ in output.
A) high levels of output; a large increase
B) high levels of output; little or no increase
C) low levels of output; a decrease
D) low levels of output; no change

Question

Quizplus · Accepted Answer

When the economy is operating at high levels of output, an increase in aggregate demand is likely to result in little or no increase in output due to capacity constraints. However, it is likely to result in an increase in the overall price level as businesses raise prices to ration the limited supply of goods and services.

An Increase in Aggregate Demand When the Economy Is Operating