If the aggregate demand curve shifts, moving the economy out of long-run equilibrium:
A) the short-run aggregate supply curve will shift to bring the economy back into long-run equilibrium.
B) the aggregate demand curve will eventually shift back into place once expectations are taken into account.
C) the long-run aggregate supply curve will shift to bring the economy back into long-run equilibrium.
D) the overall price level will change, so that the economy can move along the short-run aggregate supply curve and find a new equilibrium.

Question

Quizplus · Accepted Answer

In the short run, an increase in aggregate demand leads to higher output and higher prices, pushing the economy away from the long-run equilibrium. However, in the long run, the short-run aggregate supply curve will shift due to changes in input prices, bringing the economy back to the long-run equilibrium. Therefore, choice A is the best answer. Choice B is incorrect because expectations are already incorporated into the aggregate demand curve. Choice C is incorrect because the long-run aggregate supply curve is not affected by changes in aggregate demand. Choice D is incorrect because the overall price level is not the driving force behind the adjustment process.

If the Aggregate Demand Curve Shifts, Moving the Economy Out