In the long run, an increase in aggregate demand, all other things unchanged, will cause the price level to
A) increase and potential output to increase.
B) decrease and potential output to decrease.
C) increase and potential output to remain stable.
D) decrease and potential output to remain stable.

Question

Quizplus · Accepted Answer

In the long run, an increase in aggregate demand leads to a higher price level due to increased demand for goods and services, but potential output remains stable as it is determined by factors like technology and resources, not demand.

In the Long Run, an Increase in Aggregate Demand, All