-Refer to Figure 15-8.Suppose that the economy is at the full-employment level of output of $6 trillion when a demand shock increases real GDP to $6.5 trillion.In the long run,we would expect the
A) economy to remain at the new level of output of $6.5 trillion
B) aggregate demand curve to shift leftward until the economy returns to full employment at the original price level
C) aggregate supply curve to shift upward until the economy returns to full employment,but at a higher price level
D) aggregate supply curve to shift downward until the price level returns to its original level
E) aggregate demand curve to shift further to right as the multiplier effect occurs.

Question

-Refer to Figure 15-8.Suppose that the economy is at the full-employment level of output of $6 trillion when a demand shock increases real GDP to $6.5 trillion.In the long run,we would expect the
A) economy to remain at the new level of output of $6.5 trillion 
B) aggregate demand curve to shift leftward until the economy returns to full employment at the original price level 
C) aggregate supply curve to shift upward until the economy returns to full employment,but at a higher price level 
D) aggregate supply curve to shift downward until the price level returns to its original level 
E) aggregate demand curve to shift further to right as the multiplier effect occurs.

Quizplus · Accepted Answer

In the long run, the economy tends to return to its full-employment level of output. An increase in real GDP above full employment due to a demand shock will lead to upward pressure on prices. As prices rise, the short-run aggregate supply curve shifts upward (leftward), bringing the economy back to full employment but at a higher price level.