An increase in short-run aggregate supply immediately leads to a(n)
A) increase in real wealth and a shift of the aggregate demand curve.
B) increase in real wealth and a movement along the aggregate demand curve.
C) shift of the aggregate demand curve caused by menu costs.
D) shift of the aggregate demand curve caused by money illusion.
E) increase in money illusion and a movement along the aggregate demand curve.

Question

Quizplus · Accepted Answer

An increase in short-run aggregate supply leads to a decrease in price levels, which increases real wealth and leads to a movement along the aggregate demand curve. This is because consumers have more purchasing power due to the lower prices, leading to an increase in demand for goods and services at the same price level. Shifts in the aggregate demand curve can be caused by other factors such as changes in consumer expectations or government policies. The other answer choices are not relevant to the question or are incorrect.

An Increase in Short-Run Aggregate Supply Immediately Leads to A(n)