Multiple Choice
An increase in nominal GDP will:
20
views
1. Introduction to Macroeconomics
Introduction to Economics
Struggling with Macroeconomics?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
In the context of an increase in aggregate demand, what is the eventual effect on real GDP in the short run, assuming prices are sticky?
A
Real GDP remains unchanged
B
Real GDP decreases
C
Real GDP becomes negative
D
Real GDP increases
Verified step by step guidance1
Understand the concept of aggregate demand (AD), which represents the total demand for goods and services in an economy at different price levels.
Recognize that in the short run, prices are sticky, meaning they do not adjust immediately to changes in demand or supply.
When aggregate demand increases, firms respond to higher demand by increasing production because prices have not yet risen to offset the increased demand.
Since prices are sticky, the increase in aggregate demand leads to a higher quantity of goods and services produced, which means real GDP increases in the short run.
Summarize that the short-run effect of an increase in aggregate demand, given sticky prices, is an increase in real GDP, as firms expand output to meet the higher demand.
4:30mWatch next
Master Defining Economic Terms: Scarcity, Trade-offs, and Opportunity Costs with a bite sized video explanation from Brian
Start learningRelated Videos
Related Practice
Introduction to Economics practice set
Problem sets built by lead tutorsExpert video explanations