Suppose there was an unexpected increase in aggregate demand. We would expect to observe
A) frictional unemployment to increase.
B) the duration of unemployment and the amount of unemployment to decrease.
C) higher wages, with the duration of unemployment and the amount of unemployment unchanged.
D) a decrease in aggregate demand.

Question

Quizplus · Accepted Answer

An unexpected increase in aggregate demand can lead to an increase in production and economic growth, reducing the duration and amount of unemployment. This is because businesses will need to hire more workers to meet the increased demand for their goods and services. Option A is incorrect because frictional unemployment refers to the temporary unemployment of individuals in between jobs and is not affected by changes in aggregate demand. Option C is incorrect because higher wages would only occur if the labor market is tight and there is a shortage of workers, which may not be the case in an unexpected increase in aggregate demand. Option D is incorrect because an increase in aggregate demand would not lead to a decrease in aggregate demand.

Suppose There Was an Unexpected Increase in Aggregate Demand