In the long run, an increase in aggregate demand from a position of full employment leads to:
A) higher prices and higher output.
B) higher prices and the same output.
C) higher output and lower prices.
D) higher output and higher unemployment.

Question

Quizplus · Accepted Answer

If the economy is already at full employment, an increase in aggregate demand would lead to higher prices due to an increase in demand for goods and services. However, since the economy is already producing at full capacity, there would be no increase in output. Therefore, the answer is higher prices and the same output (choice B).

In the Long Run, an Increase in Aggregate Demand from a Position