Multiple Choice
Which of the following would most likely increase aggregate supply in an economy?
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1. Introduction to Macroeconomics
Introduction to Economics
Multiple Choice
The price level rises in the short run if:
A
aggregate demand decreases while aggregate supply remains unchanged
B
aggregate demand increases while aggregate supply remains unchanged
C
aggregate supply decreases while aggregate demand decreases
D
aggregate supply increases while aggregate demand remains unchanged
Verified step by step guidance1
Step 1: Understand the relationship between aggregate demand (AD), aggregate supply (AS), and the price level. The price level is determined by the intersection of the AD and AS curves in the aggregate market.
Step 2: Recall that an increase in aggregate demand (AD) shifts the AD curve to the right, which tends to increase both the price level and output in the short run, assuming aggregate supply (AS) remains unchanged.
Step 3: Recognize that a decrease in aggregate demand shifts the AD curve to the left, which generally lowers the price level and output, not raises the price level.
Step 4: Understand that a decrease in aggregate supply (AS) shifts the AS curve to the left, which raises the price level but typically reduces output. However, if aggregate demand also decreases, the net effect on the price level depends on the relative shifts.
Step 5: Note that an increase in aggregate supply shifts the AS curve to the right, which tends to lower the price level if aggregate demand remains unchanged.
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