Question

In the short run, if an economy has unused capacity, an increase in aggregate demand will mainly lead to ______.

Options

• Only a rise in prices

• A fall in employment

• A rise in output and employment

• A fall in consumption

Answer 1

In the short run, if an economy has unused capacity, an increase in aggregate demand will mainly lead to a rise in output and employment.

Explanation: 

More demand allows firms to produce more and hire more workers.