Using Figure 1 above, if the aggregate demand curve shifts from AD1 to AD2 the result in the short run would be:
A) P1 and Y2.
B) P3 and Y1.
C) P2 and Y3.
D) P2 and Y2.

Question

Using Figure 1 above, if the aggregate demand curve shifts from AD1 to AD2 the result in the short run would be: 
A) P1 and Y2. 
B) P3 and Y1. 
C) P2 and Y3. 
D) P2 and Y2.

Quizplus · Accepted Answer

When aggregate demand shifts from AD1 to AD2, it leads to an increase in both price level and output in the short run. As the new intersection point is at a higher level of output (Y3), it leads to an increase in prices (P2) compared to the initial intersection point (P1) but lower than the third intersection point (P3). Therefore, the correct option is C.

Using Figure 1 Above, If the Aggregate Demand Curve Shifts