Asked by Munei Tshidavhula on Jul 09, 2024
Verified
Increases in aggregate demand
A) lead to increases in real interest and unemployment rates if there is considerable excess capacity in the economy.
B) result only in inflation when the economy operates at its maximum productive capacity.
C) may be caused by ever-greater downward pressures on prices and wages if reserve requirements are raised.
D) may be caused by an increase in taxes.
E) increase both inflation and the unemployment rates.
Aggregate Demand
The sum total of all economic needs for goods and services, appraised at a constant overall price level in a stated period.
Excess Capacity
A situation where a company or economy can produce more goods or services than currently demanded, leading to unused resources or capacity.
Productive Capacity
The maximum output that an economy can produce without causing inflation, determined by the availability of factors of production.
- Identify factors that cause shifts in aggregate demand and supply and their effects on the economy.
Verified Answer
CS
cameron shepherdJul 10, 2024
Final Answer :
B
Explanation :
Increases in aggregate demand typically result in inflation only when the economy is already operating at or near its maximum productive capacity. At this point, any further increase in demand can only be met with higher prices, as there is no additional capacity to produce more goods and services. In contrast, if the economy has considerable excess capacity, an increase in demand may lead to an increase in output and employment rather than inflation.
Learning Objectives
- Identify factors that cause shifts in aggregate demand and supply and their effects on the economy.