-In the above figure, if initial equilibrium is at point A and if there is an unanticipated increase in aggregate demand from AD1 to AD2, then
A) in the short run real output will remain at Y1.
B) in the short run real output will increase above Y1, but in the long run it will return to Y1.
C) in the long run real output will increase above Y1.
D) real output will increase above Y1 in both the short run and in the long run.

Question

-In the above figure, if initial equilibrium is at point A and if there is an unanticipated increase in aggregate demand from AD1 to AD2, then
A) in the short run real output will remain at Y1. 
B) in the short run real output will increase above Y1, but in the long run it will return to Y1. 
C) in the long run real output will increase above Y1. 
D) real output will increase above Y1 in both the short run and in the long run.

Quizplus · Accepted Answer

In the short run, an unanticipated increase in aggregate demand from AD1 to AD2 will cause the real output to increase above Y1 as the economy moves to a higher point on the short-run aggregate supply curve. However, in the long run, the economy's output will return to its potential output level, Y1, as prices adjust.

-In the Above Figure, If Initial Equilibrium Is at Point