If an economy is operating along the Keynesian section of the aggregate supply curve, then an increase in aggregate demand will result in:
A) an increase in inflation and an increase in real GDP.
B) no change in the price level and a decrease in unemployment.
C) a decrease in the price level and a decrease in unemployment.
D) no change in the price level and an increase in unemployment.

Question

Quizplus · Accepted Answer

In the Keynesian section of the aggregate supply curve, the economy is at less than full employment, meaning there is slack in the economy. An increase in aggregate demand in this scenario leads to an increase in output (real GDP) and a decrease in unemployment without causing inflation, as there are enough idle resources (like labor) to meet the increased demand without pushing up prices.

If an Economy Is Operating Along the Keynesian Section of the Aggregate