If there is a positive demand shock,which of the following would represent the most likely short and long-run outcomes? (Assume the economy was initially at full employment)
A) In the short run,real GDP and the price level would increase;in the long run,real GDP would return to its original level while the price level would rise even further.
B) In the short run,real GDP and the price level would increase;in the long run,real GDP and the price level would return to their original level.
C) In the short run,real GDP would increase and the price level would decrease;in the long run,real GDP would return to its original level while the price level would rise even further.
D) In the short run,real GDP and the price level would decrease;in the long run,real GDP would return to its original level while the price level would rise even further.
E) In the short run,real GDP and the price level would increase;in the long run,real GDP would increase while the price level would return to its original level.

Question

Quizplus · Accepted Answer

In the short run, a positive demand shock increases both real GDP and the price level. In the long run, the economy returns to full employment output, so real GDP returns to its original level, but the price level remains higher due to increased aggregate demand.

If There Is a Positive Demand Shock,which of the Following