Final answer:
Between 1996 and 2000, the U.S. economy achieved full employment and stable prices due to both aggregate demand and aggregate supply increases, supported by significant investment and technological advancements. The correct answer is option: c. demand increased and aggregate supply increased.
Step-by-step explanation:
- The U.S. economy was able to achieve full employment with relative price level stability between 1996 and 2000 because aggregate demand increased and aggregate supply increased. This period was marked by significant investment by private firms in physical capital, with investment rising from 14.1% of GDP in 1993 to 17.2% in 2000.
- An increase in aggregate demand typically boosts economic activity, leading to higher employment. Similarly, an increase in aggregate supply indicates that businesses can produce more, which can absorb the increased demand without causing inflationary pressures.
- In this case, both factors worked together to create a favorable economic situation. Additionally, improvements in technology and productivity also played a role in increasing aggregate supply, further supporting the stability of price levels and full employment.