What will be an ideal response?
ANSWER:
The above figure shows the effects. An increase in aggregate demand from AD1 to AD2 causes real Gross Domestic Product (GDP) to increase, but the size of the increase is greater for AS1 than for AS2. When the price level can change, some of the impact of the increase in aggregate demand falls on the price level instead of output, whereas all of the impact is on output when the price level is fixed.