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

In the short run, a permanent expansionary AD shock increases the price level as demand exceeds supply. In the long run, the price level increases even more as the economy adjusts to the new higher demand level, leading to higher inflation.

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