Final answer:
A rightward shift of the AD curve in the steep portion of the upsloping AS curve will increase the price level more than real output, indicating an economy at or near full capacity, where additional demand leads to inflation.
Step-by-step explanation:
When examining the effects of a rightward shift of the aggregate demand (AD) curve on real output and the price level, particularly in the very steep upper part of the upsloping aggregate supply (AS) curve, it's important to understand the implications during different portions of the AS curve. In the context of a steep or nearly vertical AS curve, this is indicative of an economy that is operating at or near its full capacity. Therefore, further increases in AD tend to increase the price level significantly, while having a relatively smaller impact on increasing real output. In such a scenario, the correct answer to the question is B) increase the price level by more than real output. This happens because, at near full employment levels, there are constraints to increasing output further, and thus additional demand primarily pushes prices up, leading to inflation rather than a significant increase in real output or employment.