An increase in aggregate demand is beneficial in the short run because ________ but not in the long run because ________.
A) output decreases; the unemployment rate falls
B) the unemployment rate falls; the price level rises
C) wages decrease; wages increase
D) real wealth decreases; real wealth increases
E) wages increase; the unemployment rate rises

Question

Quizplus · Accepted Answer

An increase in aggregate demand in the short run leads to an increase in output and a decrease in unemployment rate due to increased demand for goods and services. However, in the long run, wages and production costs rise leading to an increase in the price level, and the unemployment rate may return to its natural rate. Therefore, an increase in aggregate demand is only beneficial in the short run but not in the long run.

An Increase in Aggregate Demand Is Beneficial in the Short