Assume that (a) the price level is flexible upward and downward and (b) the economy is currently operating at its full-employment output. Other things equal, how will each of the following affect the equilibrium price level of real output (Q) in the short run?

A) An increase in aggregate demand

B) decrease in aggregate supply, with no change in aggregate demand

C) Equal increases in aggregate demand and aggregate supply

D) A decrease in aggregate demand

E) An increase in aggregate demand that exceeds an increase in aggregate supply

(A) Equilibria price will increase

(B) Equilibrium price will increase

(C) Equilibrium price will remain the same.

(D) Equilibrium price will remain the same

(E) Equilibria price will increase.

Explanation:

Equilibrium price is the price of a good or service where the Quantity demanded is equal to the quantity supplied.

Aggregate demand is the total amount of goods and services that are demanded in an economy. An increase in aggregate demand causes an increase in Equilibrium price.

Aggregate Supply is the total cost of goods and services made available in an economy at a given price, as aggregate Supply decreases with no increase in demand equilibrium price will increase.

An equal increase in aggregate demand and supply will not cause any changes in the equilibrium price.