When both short-run aggregate supply and aggregate demand increase, what is the likely conclusion?

When both short-run aggregate supply and aggregate demand increase, the economy experiences a shift that can lead to an increase in real GDP. This is a result of higher demand stimulating production and greater supply capabilities allowing firms to meet that demand without facing immediate limitations.

With both demand and supply rising, it is important to analyze their relative shifts. If aggregate demand increases significantly, it can lead to upward pressure on prices due to heightened competition for goods and services. However, if the increase in aggregate supply is also substantial, it can help moderate potential price increases by providing more goods and services to the market.

The conclusion that real GDP increases while prices may rise reflects this dynamic. Economic theory supports the notion that when both aggregate supply and demand grow, the economy can expand, enhancing output and employment. The combination of these factors ultimately suggests that while there's an increase in real GDP, the impact on prices may vary depending on the magnitude of the shifts in supply and demand. This complex interaction is why the most appropriate conclusion emphasizes the increase in real GDP along with the potential for rising prices.