When aggregate demand increases or shifts to the right, what is the resulting economic condition?

When aggregate demand increases or shifts to the right, it indicates that consumers, businesses, and the government are willing to purchase more goods and services at every price level. This can occur due to factors such as increased consumer confidence, lower interest rates, or fiscal stimulus measures. As a result of this heightened demand, the overall economic activity rises, which can lead to higher prices.

The condition that emerges from an increase in aggregate demand is often referred to as an inflationary gap. This occurs because the economy may begin to operate beyond its full potential output, leading to upward pressure on prices as demand outstrips supply. When aggregate demand surpasses the economy's sustainable capacity to produce, firms may respond by raising prices rather than increasing production to meet demand, resulting in inflation.

In contrast, the other conditions do not capture the essence of what occurs with an increase in aggregate demand. A recessionary gap reflects an environment of insufficient aggregate demand, stagnation denotes a lack of growth and is often associated with stagnant prices and output, while equilibrium refers to a balanced state where aggregate supply meets aggregate demand without upward or downward pressure on prices. Hence, the accurate characterization of the economic condition following an increase in aggregate demand is an inflationary gap.