Which of the following will most likely occur as the result of an unanticipated increase in aggregate demand?
A) an increase in output and a move to a higher price level
B) an increase in prices and a long-run increase in output
C) an increase in long-run aggregate supply (LRAS shifts to the right)
D) a decrease in the natural rate of unemployment

Question

Quizplus · Accepted Answer

An unanticipated increase in aggregate demand will lead to an increase in output (since firms will produce more to meet the higher demand) and a move to a higher price level (since firms may need to raise prices due to increased demand). Option B implies that prices will increase but output will also increase in the long run, which is unlikely since the LRAS curve is assumed to be fixed in the short run. Option C (increase in LRAS) is not a direct result of an increase in aggregate demand, but may occur due to factors such as technological progress, improvements in infrastructure, etc. Option D (decrease in natural rate of unemployment) is unlikely to result from an increase in aggregate demand unless it leads to sustained higher levels of output and employment over a long period of time.

Which of the Following Will Most Likely Occur as the Result