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

Question

Quizplus · Accepted Answer

An increase in aggregate demand would lead to a rise in real GDP and a rise in the price level, while a decrease in aggregate supply would lead to a fall in real GDP and a rise in the price level. Therefore, the net effect of both changes would be indeterminate for real GDP, but there would be a rise in the price level.

Consider the AD/AS Macro Model