If wages adjust fully to price increases in the long run, fiscal policy will
A) have no affect on the price level.
B) have no affect on output.
C) have no affect on either output or the price level.
D) affect both output and the price level.

Question

Quizplus · Accepted Answer

In the long run, if wages adjust fully to price increases, fiscal policy will not affect output because any increase in demand from fiscal expansion will be offset by wage and price increases, leading to no real change in output.

If Wages Adjust Fully to Price Increases in the Long