In the long-run, an increase in aggregate demand increases the price level, but not real GDP.

Question

Quizplus · Accepted Answer

In the long-run, an economy's output is determined by its supply-side factors (such as labor, capital, and technology), not by the level of aggregate demand. Thus, while an increase in aggregate demand can lead to higher prices (inflation), it does not increase the economy's capacity to produce goods and services, leaving real GDP unchanged in the long run.

In the Long-Run, an Increase in Aggregate Demand Increases the Price