Aggregate demand-aggregate supply analysis shows that in the long run the effect of increased aggregate spending on real GDP is:
A)negative.
B)close to infinity.
C)indeterminate.
D)zero.
E)positive.

Question

Quizplus · Accepted Answer

In the long run, the economy's production capacity is determined by factors such as technology, capital, and labor. Increases in aggregate spending may temporarily increase real GDP, but in the long run, these factors adjust, leading to no net effect on real GDP. This is demonstrated by the vertical long-run aggregate supply curve in the AD-AS model, which indicates that changes in aggregate demand do not affect output in the long run. Therefore, the correct answer is D, zero.

Aggregate Demand-Aggregate Supply Analysis Shows That in the Long Run