If the macro equilibrium is below the full employment level (to the left of the natural rate of output), an increase in aggregate demand will:
A. Decrease prices and decrease output.
B. Decrease prices and increase output.
C. Increase prices and decrease output.
D. Increase prices and increase output.
Explaining Aggregate Demand:
Cumulative demand in an economy consists of the wants of households, firms, government, and foreign sectors. The demand made by each of the sectors is private consumption, financing, administrative, and foreign trading expenditure, respectively.
Answer and Explanation: 1
The correct option is option D).
When the aggregate demand increases, it leads to the jump of the AD curve towards the right, and as there is already...
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fromChapter 7 / Lesson 3
Understand the aggregate demand-aggregate supply model and its features. Read more about the curve shifts of this and learn the AD-AS model through an example.