Consider the AD/AS model, and suppose that the economy begins at potential output. The effect of a positive AS shock on real GDP will be reversed in the long run with a shift in .
A)leftward; AS
B)leftward; AD
C)leftward; Y*
D)rightward; AD
E)rightward; AS

Question

Quizplus · Accepted Answer

A positive AS shock will shift the AS curve to the right, leading to an increase in real GDP in the short run. However, in the long run, the AD curve will shift to the left, as the increase in real GDP will lead to higher prices, which will reduce aggregate demand. This will bring real GDP back to its potential level.

Consider the AD/AS Model, and Suppose That the Economy Begins