After a positive demand shock,what are the expected long-run adjustments?
A) Wages fall,price level falls,and output falls back to potential.
B) Wages rise,price level rises,and output falls back to potential.
C) Wages fall,price level rises,and output rises back to potential.
D) Wages rise,price level falls,and output falls back to potential.
E) Wages rise,price level rises,and output rises.

Question

Quizplus · Accepted Answer

In the long run, after a positive demand shock, wages and prices tend to rise due to increased demand and inflationary pressures. Output initially increases but eventually falls back to its potential level as the economy adjusts.

After a Positive Demand Shock,what Are the Expected Long-Run Adjustments