An increase in the general level of prices in the goods and services market that is accompanied by a short-run expansion in output is most likely caused by
A) an unanticipated decrease in aggregate demand.
B) an unanticipated increase in aggregate demand.
C) a favorable supply shock that shifts SRAS to the right.
D) an unfavorable supply shock that shifts SRAS to the left.

Question

Quizplus · Accepted Answer

An unanticipated increase in aggregate demand would lead to an increase in both prices and output in the short run. This is because firms are able to increase production to meet the higher level of demand, which leads to an increase in output. However, because there is more demand than supply, prices also increase.

An Increase in the General Level of Prices in the Goods