If the economy is in long run equilibrium and aggregate demand increases, then in the short run
A) the price level rises and real GDP does not change.
B) real GDP increases and the price level does not change.
C) nothing happens because the economy is in long run equilibrium.
D) the price level rises and real GDP increases.

Question

Quizplus · Accepted Answer

In the short run, an increase in aggregate demand will result in a higher price level and an increase in real GDP. This is because firms will increase production to meet the higher demand, leading to an increase in output and employment. However, in the long run, prices and wages will adjust, resulting in a higher price level and no change in real GDP.

If the Economy Is in Long Run Equilibrium and Aggregate