Case study: Read the given case study and answer the following questions:

"COVID-19 to have significant deflationary impact due to demand evaporation". Ruling out any impact of stimulus on the price situation, Chief Economic Advisor K. V. Subramaniam on Thursday said the COVID-19 pandemic has severely dented the demand for non-essential goods, creating deflationary conditions. He also said that a good part of the Rs 20 lakh crore stimulus package is designed in a manner that the fiscal deficit remains under control.

"COVID has a significant deflationary impact because demand especially for non-essential goods and services will go down significantly. Therefore, it is likely that there would be too much inflationary impact through fiscal deficit or stimulus package". Subramaniam told in an interview.

“The proposed stimulus package will generate demand by infusing liquidity into the system and thus perk up the economy", the CEA said.

"RBI is also taking some strategic actions to control the impact of COVID-19 situation", CEA father added.

At full employment level of the economy, excess aggregate demand increases _________.

(Choose any one correct option):

Price level

The correct answer is Option (2) → Price level

When the economy is at full employment, it means that all available resources are being used efficiently. Any additional increase in aggregate demand, beyond this point, does not lead to an increase in real output or employment because the economy is already producing at its maximum capacity. Instead, it results in an increase in the price level, leading to inflation.