Final answer:
The correct answer is that aggregate demand has increased, as indicated by a new short-run equilibrium with both a higher price level and output.
Step-by-step explanation:
If the economy moves to a new short-run equilibrium of P1 and Y3, then it implies that aggregate demand has increased. In the context of the Aggregate Demand-Aggregate Supply (AD-AS) model, an increase in aggregate demand (AD) would shift the AD curve to the right. This shift results in a higher price level (from P to P1) and an increase in the real output or Gross Domestic Product (GDP) (from Y to Y3) in the short run.
As the question suggests a movement to a new equilibrium point with a higher price level and output, it is typical of an increase in AD due to factors such as increased consumer spending, business investment, government spending, or net exports. This movement does not align with the effects of a decrease in short-run aggregate supply (SRAS), which would typically lead to a higher price level but a lower output. Similarly, an increase in SRAS would lead to a lower price level and a higher output, which is again not the scenario described.