Question

Which of the following will occur as a result if aggregate demand is greater than aggregate supply in the current price level?

a. Nominal GDP will decline

b. Employment will tend to rise

c. Firms will tend to reduce real output

d. Both a. and c. will occur

e. None of the above will occur.

Answer 1

Assuming Full employment assumption output will not rise but in other cases output should rise and Employment should increase

We can not certainly say that emploment will rise as it depends upon the structure of production function therefore if generic production function is assumed then Employment will tend to rise

Therefore either b in most of the cases is correct or in case of special production function where technology matters he most employment maynot increase

Either b or e

Go with b if its incorrect then e for sure