For much of the 1990s, the U. S. economy was experiencing long-run economic growth, low unemployment, and a stable inflation rate. Which of the following would give rise to these outcomes? Choose one:

A. an increase in aggregate demand and short-run aggregate supply

B. a decrease in aggregate demand and short-run aggregate supply

C. a decrease in aggregate demand and an increase in short-run aggregate supply

D. an increase in aggregate demand and a decrease in short-run ag

A. an increase in aggregate demand and short-run aggregate supply.

Explanation:

An increase in Aggregate Demand is synonymous with an increase in Economic growth as it meant that companies would try to produce more goods and services to match this demand thereby increasing the production capacity of the Economy . In order to do so however, they needed to hire more people and so the unemployment rate decreased. As more people were employed, more people were able to earn an income and then demand more goods and services which led to a sort of Economic growth cycle.

As demand for goods kept rising, so did the cost of those goods as posited by the Law of Demand and this was what led to the stable rate of inflation.

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