When an economy is operating at high levels of output, an increase in aggregate demand will result in what? ?

Question

when an economy is operating at high levels of output, an increase in aggregate demand will result in what?

Answer 1

Result will be higher than average increase in price level - because there in no productive capacity left - so only tool against shortages is higher prices.

For highly opened economy it will mean sharp increase in imports, thus capital inflow, domestic currency appreciation, fall of export, and consequently trade deficit (increase in foreign debt).

If economy is below potential then price level will rise much slower but employment will increase closer to natural rate.