The effect of an increase in aggregate supply is a(n):
A) increase in the general level of prices and a decrease in real output.
B) increase in the general level of prices and an increase in real output.
C) decrease in the general level of prices and a decrease in real output.
D) decrease in the general level of prices and an increase in real output.

Question

Quizplus · Accepted Answer

An increase in aggregate supply means that there is a greater quantity of goods and services available in the economy. This, in turn, leads to lower prices as producers compete to sell their goods. The increase in output also means that real output has increased, as there is more production and economic activity. Therefore, the correct choice is D, which states that there is a decrease in the general level of prices and an increase in real output.

The Effect of an Increase in Aggregate Supply Is A(n)