The analysis of the short-run and long-run Phillips Curve suggests that an increase in aggregate demand
A) inﬂuences real output and employment in the long run, but not in the short run.
B) inﬂuences real output and employment in the short run, but not in the long run.
C) does not inﬂuence the price level in the short run or the long run but only real output and employment.
D) does not inﬂuence real output and employment in the short run or the long run but only the price level.

Question

Quizplus · Accepted Answer

The short-run Phillips Curve suggests that there is a negative relationship between unemployment and inflation in the short run, meaning an increase in aggregate demand would lead to an increase in output and employment and a decrease in unemployment in the short run. However, in the long-run, the Phillips Curve becomes vertical, suggesting that in the long run, changes in aggregate demand only lead to changes in the price level, not output or employment. Therefore, an increase in aggregate demand influences real output and employment in the short run but not in the long run.

The Analysis of the Short-Run and Long-Run Phillips Curve Suggests