If the long-run equilibrium of an economy is disrupted by an unanticipated increase in aggregate demand (such as might result from unexpectedly strong demand for exports due to the rapid growth of incomes abroad),
A) the price of resources will decrease.
B) the natural rate of unemployment will decrease.
C) actual unemployment will temporarily fall below the natural rate.
D) prices will decrease.

Question

Quizplus · Accepted Answer

An unanticipated increase in aggregate demand will cause firms to increase production and hire more workers, resulting in a temporary decline in unemployment below the natural rate. However, this will eventually lead to an increase in wages and prices as firms compete for limited resources, returning the economy to the long-run equilibrium. The other choices are incorrect because an increase in aggregate demand will cause prices and the prices of resources to increase in the long run, not decrease. Additionally, a decrease in the natural rate of unemployment would not result from a temporary shock like an increase in aggregate demand.

If the Long-Run Equilibrium of an Economy Is Disrupted by an Unanticipated