Beginning at a long-run equilibrium, an increase in aggregate demand
A)increases the price level and in the long run increases real GDP.
B)increases the price level and in the long run decreases real GDP.
C)decreases the price level and in the long run increases real GDP.
D)decreases the price level and in the long run decreases real GDP.
E)increases the price level, but in the long run there is no change in real GDP.

Question

Quizplus · Accepted Answer

In the long run, an increase in aggregate demand raises the price level but does not change real GDP because the economy returns to its potential output level.

Beginning at a Long-Run Equilibrium, an Increase in Aggregate Demand