If the economy is in long run equilibrium and aggregate demand increases, then in the short run
A) the price level rises and real GDP increases.
B) the price level rises and real GDP does not change.
C) real GDP increases and the price level does not change.
D) nothing happens because the economy is in long run equilibrium.

Question

Quizplus · Accepted Answer

In the short run, an increase in aggregate demand will lead to a temporary increase in the price level and an increase in real GDP. This is because firms will respond to the increase in demand by increasing output and employment, which will temporarily drive up prices due to supply constraints. However, in the long run, the economy will adjust and return to its long run equilibrium, where the price level will have fully adjusted to the increase in aggregate demand, and real GDP will return to its natural level.

If the Economy Is in Long Run Equilibrium and Aggregate