If the economy is initially in long-run equilibrium, which of the following best describes the effects of a shift in aggregate demand?
A)Prices and output are affected in both the short and long run.
B)Prices and output are affected only in the short run.
C)Prices are affected in the long and short run, but output only in the short run.
D)Prices are affected in the long and short run, but output only in the long run.

Question

Quizplus · Accepted Answer

In the short run, both prices and output can be affected by a shift in aggregate demand. However, in the long run, the economy returns to full employment output, so only prices are affected while output remains unchanged.

If the Economy Is Initially in Long-Run Equilibrium, Which of the Following