Assuming that the economy is currently in a long-run equilibrium with real GDP equal to Y*,a positive AD shock (with no change in the money supply)will eventually result in

Question

Quizplus · Accepted Answer

According to the long-run aggregate supply curve, an increase in aggregate demand will lead to a higher price level and real GDP at its potential level (Y*). In the long run, prices are flexible and will adjust to the increased demand, allowing the economy to reach the potential output level. Therefore, the correct answer is D.

Assuming That the Economy Is Currently in a Long-Run Equilibrium