Consider the basic AD/AS macro model, initially in a long- run equilibrium. A positive AS shock will the price level and output in the short run. In the long run, the price level will and output .
A)increase; increase; return to its initial level; will be restored to potential output
B)increase; increase; decrease; will be restored to potential output
C)decrease; increase; decrease further; will be restored to potential output
D)decrease; decrease; decrease further; will decrease further
E)decrease; increase; return to its initial level; will be restored to potential output

Question

Quizplus · Accepted Answer

A positive AS shock decreases the price level and increases output in the short run. In the long run, the price level returns to its initial level, and output is restored to potential output.

Consider the Basic AD/AS Macro Model, Initially in a Long-