Starting from long-run equilibrium,the long-run impact(s)of an increase in autonomous investment,compared to the original equilibrium,would be
A) higher inflation.
B) higher output.
C) higher inflation and higher output.
D) lower inflation and lower output.
E) lower inflation and higher output.

Question

Quizplus · Accepted Answer

An increase in autonomous investment leads to higher aggregate demand, which in the long run results in higher inflation as the economy adjusts back to full employment output. Output returns to its original level due to the economy's self-correcting mechanism.

Starting from Long-Run Equilibrium,the Long-Run Impact(s)of an Increase in Autonomous