According to the monetarists, after an initial increase in aggregate demand,
A) short-run aggregate supply curve will tend to shift leftward, reflecting the effect of higher wages adjusting in the long run.
B) short-run aggregate supply curve will tend to shift leftward, reflecting the effect of lower wages adjusting in the long run.
C) aggregate demand curve will tend to shift rightward, reflecting the effect of income adjusting in the long run.
D) aggregate demand curve will tend to shift lower, reflecting the effect of price level adjusting in the long run.

Question

Quizplus · Accepted Answer

According to monetarists, an initial increase in aggregate demand will lead to a temporary increase in output and employment in the short run. However, in the long run, wages will adjust, leading to higher costs for firms and a leftward shift in the short-run aggregate supply curve. This will result in higher prices and lower output, bringing the economy back to its original equilibrium level of output. Therefore, the best choice is A.

According to the Monetarists, After an Initial Increase in Aggregate