If the economy's AS curve is upward sloping, a positive aggregate demand shock will result in
A)an increase in output but not prices.
B)a decrease in output and an increase in prices.
C)an increase in both output and prices.
D)a decrease in both output and prices.
E)an increase in prices but not output.

Question

Quizplus · Accepted Answer

In an upward sloping AS curve, when there is a positive aggregate demand shock, the output and prices both increase. This is because, in the short run, firms can increase their output by utilizing their existing resources and labor force. As the demand for goods and services increases, firms increase their prices due to higher demand. Thus, the economy experiences an increase in both output and prices.

If the Economy's AS Curve Is Upward Sloping, a Positive