An increase in aggregate demand causes an increase in ________ only in the short run, but causes an increase in ________ in both the short run and the long run.
A)the price level; real GDP
B)nominal GDP; real GDP
C)the price level; the price level
D)real GDP; the price level
E)nominal GDP; the price level

Question

Quizplus · Accepted Answer

In the short run, an increase in aggregate demand can lead to higher real GDP and price levels. However, in the long run, the economy tends to return to its potential output, so real GDP does not increase, but the price level remains higher.

An Increase in Aggregate Demand Causes an Increase in ________