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 long run, the AD/AS model returns to potential output and the economy is at full employment. Therefore, an expansionary AD shock would only have a positive output effect in the short run as prices adjust to the higher demand. In the long run, prices have fully adjusted and the economy returns to its potential output level, so there would be no further increase in output.

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