When the economy is at full employment and investment increases, in the long run the price levelwill ________ and, if potential GDP does not change, in the long run real GDP will ________.

Question

Quizplus · Accepted Answer

In the long run, an increase in investment leads to an increase in aggregate demand, which raises the price level. However, if potential GDP does not change, real GDP remains at the full employment level, so it does not change.

When the Economy Is at Full Employment and Investment Increases