The long-run effect of an increase in household consumption is to raise
A)both real output and the price level.
B)real output and lower the price level.
C)real output and leave the price level unchanged.
D)the price level and leave real output unchanged.

Question

Quizplus · Accepted Answer

In the long run, an increase in household consumption shifts the aggregate demand curve to the right, leading to a higher price level. However, real output remains unchanged as it is determined by the economy's potential output, which is not affected by demand-side factors in the long run.

The Long-Run Effect of an Increase in Household Consumption Is