A rise in aggregate demand and a fall in short-run aggregate supply will definitely
A) raise the price level, but there is not enough information to know how Real GDP will change.
B) lower Real GDP, but there is not enough information to know how the price level will change.
C) raise the price level and Real GDP.
D) raise Real GDP, but there is not enough information to know how the price level will change.
E) raise the price level and lower Real GDP.

Question

Quizplus · Accepted Answer

A rise in aggregate demand increases the price level, while a fall in short-run aggregate supply also increases the price level. However, the effect on Real GDP is uncertain as it depends on the relative magnitudes of the shifts.

A Rise in Aggregate Demand and a Fall in Short-Run