Question

Which of the following would cause prices and real GDP to rise in the short run?
a.short-run aggregate supply shifts right
b.short-run aggregate supply shifts left
c.aggregate demand shifts right
d.aggregate demand shifts left

Answer 1

C) Aggregate demand shifts right.
A shift in the aggregate demand (AD) curve to the right occurs when components of aggregate demand (AD) such as government, consumer, investment, and import and export spending grow. This raises real GDP and its price level.

What occurs when the GDP rises?

In general, a growth in real GDP is seen as a positive indicator of the health of the economy. With more workers needed for industries and more money in people's pockets, employment is expected to rise while real GDP is expanding rapidly.

What occurs when the GDP is too low?

Growth is negative if GDP declines from one quarter to the next. This frequently results in declining incomes, reduced consumption, and job losses. When there has been negative growth for two consecutive quarters (i.e., six months), the economy is in recession.

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