Assume that the aggregate demand increases while the short-run aggregate supply decreases.The result is a(n):
A)increase in both equilibrium real GDP and the price level.
B)decrease in equilibrium real GDP and an increase in the price level.
C)decrease in both equilibrium real GDP and the price level.
D)decrease in equilibrium real GDP, while the price level remains fixed.
E)increase in the price level, while the change in equilibrium real GDP is ambiguous.

Question

Quizplus · Accepted Answer

When aggregate demand increases and short-run aggregate supply decreases, the price level will rise due to increased demand and decreased supply. However, the effect on real GDP is ambiguous because the increase in demand tends to raise GDP, while the decrease in supply tends to lower it.

Assume That the Aggregate Demand Increases While the Short-Run Aggregate