Consider the basic AD/AS macro model, initially in a long -run equilibrium. A positive AS shock will
The price level and output in the short run. In the long run, the price level will and output
)
A) decrease; decrease; decrease further; will decrease further
B) decrease; increase; decrease further; will be restored to potential output
C) decrease; increase; return to its initial level; will be restored to potential output
D) increase; increase; decrease; will be restored to potential output
E) increase; increase; return to its initial level; will be restored to potential output

Question

Quizplus · Accepted Answer

A positive AS shock will increase output in the short run and cause a temporary decrease in the price level. However, in the long run, prices will adjust and return to their original level, while output will be restored to potential output. Choice C accurately reflects this outcome.

Consider the Basic AD/AS Macro Model, Initially in a Long