Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the first period of a multi-period positive demand shock, output _____, and inflation _____.
A)increases; increases
B)increases; decreases
C)decreases; decreases
D)decreases; increases

Question

Quizplus · Accepted Answer

In the first period of a positive demand shock, aggregate demand increases, leading to higher output and higher inflation as the economy moves away from its long-run equilibrium.

Beginning at Long-Run Equilibrium in the Dynamic Model of Aggregate