Suppose aggregate demand increases by more than expected.Which of the following does not occur?
A)Unemployment falls.
B)The price level rises.
C)The natural unemployment rate does not change.
D)Real GDP is greater than potential GDP.
E)Stagflation occurs.

Question

Quizplus · Accepted Answer

Stagflation occurs when both inflation and unemployment increase simultaneously. However, option A mentions that unemployment falls, which contradicts stagflation. Therefore, E is the correct choice.

Suppose Aggregate Demand Increases by More Than Expected