If there is an unanticipated increase in aggregate demand, which of the following is most likely to occur?

a) an increase in the price level (inflation)

b) an increase in the rate of unemployment

c) a reduction in the growth rate of real GDP

d) a decrease in LRAS to restore full employment

A. an increase in the price level (inflation)

Explanation:

When there is an unanticipated increase in aggregate demand it usually result in the general increase in the price level of that good demanded (inflation). This is because when there is an unpredicted increase in demand for a good, the demand becomes higher than the supply for that good at that particular period. Because the supply is now less than the aggregate demand, the prices of the commodity is then increased to discourage demand. The increase in the price of the commodity (inflation) therefore is a direct result from the increase in the aggregate demand for that commodity.