Figure 13-5 shows the short-run macroeconomic equilibrium of an economy. Which of the following will happen in the short run if there is an increase in aggregate demand?Figure 13-5
A)The creation of an inflationary gap
B)The creation of a recessionary gap
C)The restoration of the economy to its long-run equilibrium
D)A fall in the aggregate price level
E)An increase in the level of unemployment in the economy

Question

Figure 13-5 shows the short-run macroeconomic equilibrium of an economy. Which of the following will happen in the short run if there is an increase in aggregate demand?Figure 13-5 
A)The creation of an inflationary gap 
B)The creation of a recessionary gap 
C)The restoration of the economy to its long-run equilibrium 
D)A fall in the aggregate price level 
E)An increase in the level of unemployment in the economy

Quizplus · Accepted Answer

An increase in aggregate demand will shift the aggregate demand curve to the right, causing a higher equilibrium output level and higher equilibrium price level. As the economy moves from point A to point B, it enters an inflationary gap because output is above potential output, and firms face upward pressure on prices due to increased demand.

Figure 13-5 Shows the Short-Run Macroeconomic Equilibrium of an Economy