Final answer:
Inflation is expected if the aggregate quantity demanded exceeds aggregate quantity supplied, as higher demand in the presence of limited supply typically leads to rising prices. Equilibrium is found where AD intersects AS. Shifts in AD affect both the price level and equilibrium output.
Step-by-step explanation:
If the current price level was such that the aggregate quantity demanded exceeded the aggregate quantity supplied, we would expect inflation to occur. This scenario is described by option A. The reasoning behind this is that when demand exceeds supply, prices typically rise as consumers are willing to pay more to obtain the goods they desire, leading to inflation. This does not necessarily mean the aggregate demand curve has shifted rightward; it's simply that at the current price level, demand is greater than supply.
Equilibrium in the market occurs where the aggregate demand (AD) curve intersects the aggregate supply (AS) curve. If aggregate demand shifts right, it indicates increased demand at all price levels, typically raising both equilibrium price and output. Conversely, if aggregate demand shifts left, it indicates a decrease in demand, typically lowering both equilibrium price and output. When considering whether to use aggregate demand to alter the level of output or to control any inflationary increases in the price level, it is important to assess the current economic conditions, such as whether the economy is near full employment or if there are other inflationary pressures.