If the economy operates beyond full employment, what shift occurs in the aggregate demand curve?

When considering what happens when an economy operates beyond full employment, it’s important to understand the relationship between the aggregate demand curve and price levels. Operating beyond full employment typically means that the economy is producing at or beyond its capacity, leading to inflationary pressures.

In such a scenario, one of the primary outcomes is that the aggregate demand curve shifts to the right. This shift represents an increase in the total demand for goods and services in the economy, often due to factors like increased consumer spending, investment, or government expenditure. When demand increases, it tends to drive prices up. Consequently, if the economy is already beyond full employment, it generates more demand than the economy can sustainably produce, leading to a rise in the overall price level.

Therefore, the correct understanding here is that when the economy operates beyond full employment, the aggregate demand increases, shifting the curve rightward and leading to an increase in the price level, which corresponds to the first choice. Operating beyond the economy's capacity does not lead to a leftward shift of the aggregate demand curve or to decreasing price levels; these scenarios would indicate a declining economy or lower demand overall.