According to the consensus view,when demand increases near full employment,
A)The price level increases,but real GDP stays the same.
B)Real GDP increases,but the price level stays the same.
C)Both the price level and real GDP increase.
D)The price level decreases,but real GDP increases.

Question

Quizplus · Accepted Answer

When demand increases near full employment, firms cannot increase production due to limitations in resources and labor. This leads to a situation where demand outstrips supply, causing prices to increase. However, since firms cannot increase production beyond full employment, real GDP stays the same. Therefore, both the price level and real GDP increase.

According to the Consensus View,when Demand Increases near Full Employment