Question

Why should the price rise only after full employment?

विकल्प

• Price level do not rise before full employment because AS is assumed to be perfectly elastic.

• Whatever be the level of aggregate demand, AS converges with AD so that Ab and AS tends to be equal Without causing any change in price level

• When AD increases beyond its full employment level, then· the mounting pressure of demand on the existing output causes a rise in prices

• All of the above

Answer 1

All of the above

Explanation:

Because AS is supposed to be completely elastic, prices do not rise before full employment. Whatever the level of aggregate demand, AS tends to converge with AD to the point where AD and AS are identical without producing any price changes. When AD rises above its full employment level, however, the mounting demand pressure on current output generates a price increase.