Refer to the diagram below. Suppose that aggregate demand increased from AD₁ to AD₂. For the price level to stay constant: A) the aggregate supply curve would have to shift rightward. B) the aggregate supply curve would have to shift leftward. C) real domestic output would have to remain constant. D) the aggregate supply curve would have to be vertical.

Question

Quizplus · Accepted Answer

If aggregate demand increases while the aggregate supply curve remains constant, there will be an increase in both prices and real domestic output. However, if the price level is to stay the same, the aggregate supply curve must shift rightward to meet the increased demand without increasing prices. This represents a situation where the economy experiences growth without inflation.

Refer to the Diagram Below