In the short run, if prices were below equilibrium,
A) excess aggregate demand for goods and services would place downward pressure on prices.
B) excess aggregate supply of goods and services would place downward pressure on prices.
C) excess aggregate demand for goods and services would place upward pressure on prices.
D) excess aggregate supply of goods and services would place upward pressure on prices.

Question

Quizplus · Accepted Answer

If prices were below equilibrium, it would indicate that there is excess aggregate demand for goods and services. This means that consumers would be willing to buy more goods and services at the given price level, leading to a shortage. As a result, suppliers would be able to charge higher prices to maximize their profits, leading to an increase in prices. Thus, excess aggregate demand would place upward pressure on prices.

In the Short Run, If Prices Were Below Equilibrium