Question

Assume initially the economy is at full employment. if aggregate demand increases, the aggregate price level and costs will ______, and ultimately, the short run aggregate supply curve shifts to the _______.

Answer 1

If aggregate demand increases, the aggregate price level and costs will INCREASE OR RISE, and ultimately, the short run aggregate supply curve shift to the LEFT. The aggregate price level increases because demand increases and the supply curve shift to the left because supply will decrease.