When the economy returns to full-employment GDP after an increase in aggregate demand, what must occur with other resource costs?

When the economy returns to full-employment GDP following an increase in aggregate demand, it is expected that resource costs will increase. This phenomenon occurs because an initial rise in aggregate demand can lead to higher output and employment levels, putting positive pressure on resource utilization. As businesses ramp up production to meet the increased demand, they may encounter constraints on available resources.

In a context of full employment, resources are already being utilized to their maximum potential. Consequently, to produce additional output, firms may have to offer higher wages or better conditions to attract labor, or they may need to pay more for raw materials and other inputs, driving up overall resource costs. This increase is often magnified during periods of economic expansion, where competition for finite resources intensifies, further contributing to rising costs.

Maintaining the status quo in resource costs is unlikely when the economy is operating at a higher output level; in fact, increased output typically demands more expensive inputs, reflecting the fundamental principles of supply and demand in a constrained resource environment. Thus, as aggregate demand escalates and output approaches full-employment GDP, it is evident that resource costs must consequently increase.