What happens if aggregate demand increases simultaneously with a decrease in short-run aggregate supply,due to anticipated expansionary monetary policy?
A) The price level remains constant,and real gross domestic product (GDP)decreases.
B) The price level increases,and real gross domestic product (GDP)increases.
C) The price level increases,and real gross domestic product (GDP)decreases.
D) The price level decreases,and real gross domestic product (GDP)remains constant.
E) The price level increases,and real gross domestic product (GDP)remains constant.

Question

Quizplus · Accepted Answer

When aggregate demand increases and short-run aggregate supply decreases, the price level typically rises due to increased demand and reduced supply. However, the effects on real GDP can vary, but in this scenario, it is likely to remain constant as the increase in demand is offset by the decrease in supply.

What Happens If Aggregate Demand Increases Simultaneously with a Decrease