Consider the basic AD/AS macro model in long-run equilibrium.An expansionary AD shock would have ________ output effect in the short run and ________ output effect in the long run.
A)a positive; no
B)a positive; a positive
C)no; a positive
D)no; no
E)not enough information to know

Question

Quizplus · Accepted Answer

In the short run, an expansionary aggregate demand (AD) shock would increase output due to price and wage stickiness. However, in the long run, the economy returns to its natural level of output as prices and wages adjust, meaning there is no long-term effect on output.

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