Consider the basic AD/AS macro model in long-run equilibrium.A permanent expansionary AD shock has ________ price-level effect in the short run and ________ price-level effect in the long run.
A)a positive; no
B)a negative; no
C)a positive; an even larger
D)a positive; a smaller
E)a negative; a positive

Question

Quizplus · Accepted Answer

A permanent expansionary AD (Aggregate Demand) shock increases the price level in the short run due to the upward slope of the AS (Aggregate Supply) curve in the short run. In the long run, as the economy adjusts and the AS curve shifts, the price level effect is even larger because the economy moves to a new long-run equilibrium at a higher price level, reflecting the increased demand throughout the economy.

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