1. Assume that (a) the price level is flexible upward and downward and (b) the e

Question

1. Assume that (a) the price level is flexible upward and downward and (b) the economy is currently operating at its full-employment output. Other things equal, how will each of the following affect the equilibrium price level of real output (Q) in the short run?

A)An increase in aggregate demand

B) decrease in aggregate supply, with no change in aggregate demand

C)Equal increases in aggregate demand and aggregate supply

D) A decrease in aggregate demand

E) An increase in aggregate demand that exceeds an increase in aggregate supply

Explanation / Answer

(A) Price level rises rapidly and a small change in real output.

(B) Price level rises and real output decreases.

(C) Price level does not change, but real output increases.

(D) Price level does not change, but real output declines.

(E) Price level increases a little, as does real output.

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