Consider the basic AD/AS model with an upward-sloping AS curve.A positive aggregate demand shock will result in
A)an increase in prices but not output.
B)an increase in output but not prices.
C)an increase in both output and prices.
D)a decrease in both output and prices.
E)a decrease in output and an increase in prices.

Question

Quizplus · Accepted Answer

An upward-sloping AS curve means that an increase in aggregate demand would lead to higher prices and higher output. Therefore, the correct answer is that a positive aggregate demand shock would result in an increase in both output and prices.

Consider the Basic AD/AS Model with an Upward-Sloping AS Curve