In the short run, a positive demand shock _____ aggregate output and _____ the aggregate price level.
A) reduces; increases
B) increases; reduces
C) reduces; reduces
D) increases; increases

Question

Quizplus · Accepted Answer

A positive demand shock increases the demand for goods and services, which leads to an increase in the aggregate output as firms increase production to meet the higher demand. This increase in output also puts upward pressure on prices, resulting in an increase in the aggregate price level. Therefore, in the short run, a positive demand shock increases aggregate output and increases the aggregate price level.

In the Short Run, a Positive Demand Shock _____ Aggregate