Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The equilibrium price level will rise due to higher demand for goods and services.
B
The equilibrium price level will fall as production increases to meet demand.
C
The equilibrium price level will remain unchanged as supply adjusts instantly.
D
The equilibrium price level will drop due to decreased consumer confidence.
Understanding the Answer
Let's break down why this is correct
Answer
When aggregate demand in an economy increases significantly, it means that people and businesses want to buy more goods and services. This higher demand can lead to an increase in the overall price level, which is the average of prices in the economy. For example, if many people suddenly want to buy more cars, car manufacturers may not be able to produce enough quickly, causing car prices to rise. As prices increase, the equilibrium price level, which is where supply meets demand, will also rise to reflect this new demand. Therefore, we can expect that a significant increase in aggregate demand will usually lead to higher prices in the short term.
Detailed Explanation
When more people want to buy goods and services, businesses see higher demand. Other options are incorrect because This answer suggests that prices drop when production increases; This choice implies that prices stay the same even with higher demand.
Key Concepts
Aggregate Demand
Equilibrium Price Level
Economic Fluctuations
Topic
Aggregate Supply and Demand Analysis
Difficulty
easy level question
Cognitive Level
understand
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