For any increase in aggregate demand, the resulting increase in real output will become smaller as the increase in Blank______ becomes greater.

Question

Multiple choice question.

aggregate supply

the price level

interest rates

the level of investment spending

Answer 1

The correct answer is the price level.

As aggregate demand increases, if the price level rises significantly, the increase in real output tends to diminish, leading to a smaller increase in real output. This concept is tied to the short-run aggregate supply curve, which becomes steeper as the economy approaches its potential output.