Unanticipated Increase in Aggregate Demand: Short-Run Effects

Short-Run Effects of Unanticipated Increase in Aggregate Demand

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Question

Which of the following will most likely occur in the short-run if there is an unanticipated increase in aggregate demand?

Answers

A. an increase in output and a higher price level

B. a decrease in prices, while output remains unchanged

C. a decrease in output and a higher price level

D. a decrease in output and a lower price level

E. an increase in output, while prices remain unchanged A

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Explanations

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A. B. C. D. E.

Explanation

In response to an unanticipated increase in aggregate demand prices will rise and output will temporarily exceed full employment capacity. In the long run, output will return to its long run potential.

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