Answer to Question #242944 in Macroeconomics for Mercy

Question

A country experiences a decrease in the price level and a rise in real output. What combination of the changes in aggregate demand and supply would generate this outcome?

Group of answer choices

A decrease in aggregate demand but no change in aggregate supply.

A decrease in aggregate supply.

A decrease in both aggregate demand and aggregate supply.

An increase in aggregate supply but no change in aggregate demand.

Answer 1

Solution:

The correct answer is D. An increase in aggregate supply but no change in aggregate demand.

A higher level of productivity will shift the aggregate supply curve to the right since with improved productivity, firms can produce a greater quantity of output at every price level. This AS rightward shift will result in a greater level of output (GDP) and downward pressure on the price level as long as the aggregate demand is constant.