When monetary and fiscal policymakers expand aggregate demand,which of the following costs is incurred in the short run?
A)Short-run aggregate supply decreases.
B)The natural rate of unemployment increases.
C)The price level increases more rapidly.
D)The money supply increases less rapidly.

Question

Quizplus · Accepted Answer

When policymakers expand aggregate demand, they increase the overall demand for goods and services, which can lead to a rise in the price level. In the short run, firms may not be able to increase their production capacity quickly enough to keep up with the increased demand, resulting in a temporary increase in the price level. The other options (decrease in short-run aggregate supply, increase in natural rate of unemployment, and decrease in money supply growth rate) are not necessarily costs incurred in the short run when policymakers expand aggregate demand.

When Monetary and Fiscal Policymakers Expand Aggregate Demand,which of the Following