In the long run, as the economy self-corrects, an increase in aggregate demand will cause the price level to _____ and potential output to _____.
A) rise; increase
B) fall; decrease
C) rise; remain stable
D) fall; remain stable

Question

Quizplus · Accepted Answer

In the long run, an increase in aggregate demand primarily affects the price level, causing it to rise, while potential output (the economy's capacity to produce goods and services) remains stable, as it is determined by factors like technology, capital, and labor, rather than by demand.

In the Long Run, as the Economy Self-Corrects, an Increase