Question
According to the extended AD-AS model, what happens when aggregate demand increases in the short run?
Multiple choice question.
Real output expands resulting in a positive GDP gap.
Real output contracts resulting in a negative GDP gap.
The full employment level reaches equilibrium.
Prices fall resulting in a decline in nominal wages.
Multiple choice question.
Real output expands resulting in a positive GDP gap.
Real output contracts resulting in a negative GDP gap.
The full employment level reaches equilibrium.
Prices fall resulting in a decline in nominal wages.
Answers
GPT-4o mini
In the context of the extended AD-AS (Aggregate Demand-Aggregate Supply) model, when aggregate demand increases in the short run, the correct answer is:
**Real output expands resulting in a positive GDP gap.**
This reflects that an increase in aggregate demand typically leads to higher production and employment in the short run, as the economy moves beyond its full employment level, creating a positive GDP gap.
**Real output expands resulting in a positive GDP gap.**
This reflects that an increase in aggregate demand typically leads to higher production and employment in the short run, as the economy moves beyond its full employment level, creating a positive GDP gap.