Consider the AD/AS model. Suppose there is a decrease in aggregate demand and, simultaneously, an increase in aggregate supply. The result will be a
A)rise in real GDP but price level changes will be indeterminate.
B)an indeterminate change in real GDP and a fall in the price level.
C)an indeterminate change in real GDP and a rise in the price level.
D)rise in real GDP and a fall in the price level.
E)rise in real GDP and a rise in the price level.

Question

Quizplus · Accepted Answer

A decrease in aggregate demand tends to lower both real GDP and the price level, while an increase in aggregate supply tends to increase real GDP and lower the price level. The net effect on real GDP is indeterminate because it depends on the relative magnitudes of the shifts, but the price level will definitely fall.

Consider the AD/AS Model