Consider the basic AD/AS macro model in long-run equilibrium.An expansionary AD shock will ________ the price level and ________ output in the short run.In the long run,the price level will ________ and output will ________.
A)decrease; decrease; decrease further; decrease further
B)decrease; decrease; decrease further; be restored to potential output
C)increase; increase; increase further; increase further
D)increase; decrease; increase further; be restored to potential output
E)increase; increase; increase further; be restored to potential output

Question

Quizplus · Accepted Answer

In the short run, an expansionary aggregate demand (AD) shock increases both the price level and output. In the long run, the price level continues to increase as the economy adjusts, but output is restored to its potential level as the economy self-corrects.

Consider the Basic AD/AS Macro Model in Long-Run Equilibrium