Question

In Exhibit 10-8, if aggregate demand shifts from AD1 to AD2,

a. real GDP will increase from $3.0 to $7.0, and the price level will remain the same.
b. real GDP will increase from $3.0 to $4.0, and the price level will remain the same.
c. real GDP and the price level will both remain the same.
d. real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140.

Answer 1

When aggregate demand shifts from AD1 to AD2, the real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140.

Step-by-step explanation:

When aggregate demand shifts from AD1 to AD2, the real GDP will increase from $3.0 to $4.0, and the price level will increase from 100 to 140. This is because the shift in aggregate demand leads to an increase in both output and prices. The increase in real GDP reflects the expansion of the economy, while the increase in the price level indicates inflationary pressures.