Figure 15-4
-In Figure 15-4,if initial equilibrium is at point A and if there is an unanticipated increase in aggregate demand from A D₁ to A D₂,then
A)in the short run real output will remain at Q₁.
B)in the short run real output will increase above Q₁,but in the long run it will return to Q₁.
C)in the long run real output will increase above Q₁.
D)real output will increase above Q₁ in both the short run and in the long run.

Question

Figure 15-4 
-In Figure 15-4,if initial equilibrium is at point A and if there is an unanticipated increase in aggregate demand from A D₁ to A D₂,then
A)in the short run real output will remain at Q₁. 
B)in the short run real output will increase above Q₁,but in the long run it will return to Q₁. 
C)in the long run real output will increase above Q₁. 
D)real output will increase above Q₁ in both the short run and in the long run.

Quizplus · Accepted Answer

In the short run, an increase in aggregate demand will lead to an increase in both real output and the price level. As a result, the initial equilibrium point A will move to point B, where output is higher but the price level is also higher. In the long run, firms will adjust to the higher price level by increasing their prices and output levels, but the real output will return to its natural level of Q₁. Therefore, in the long run, real output will remain at Q₁, while the price level will be higher than its initial value. This adjustment process is called the long-run equilibrium.

Figure 15-4 -In Figure 15-4,if Initial Equilibrium Is at Point a and Point