If the economy's short-run aggregate supply curve is upward sloping, an increase in
Aggregate demand will cause
A) an increase in the price level and employment.
B) a decrease in the price level and employment.
C) an increase in the price level and a decrease in employment.
D) a decrease in the price level and an increase in employment.

Question

Quizplus · Accepted Answer

If the short-run aggregate supply curve is upward sloping, an increase in aggregate demand will lead to an increase in both the price level and employment. The increase in aggregate demand will bring about an increase in real output, leading to a higher level of employment. However, as producers attempt to increase output to meet the higher demand, they will have to pay more for inputs, causing prices to rise.

If the Economy's Short-Run Aggregate Supply Curve Is Upward Sloping