Which of the following statements about aggregate demand and supply in the new classical model is FALSE?
A) In the short run there can be an increase in aggregate demand without an increase in the general level of prices.
B) In the long run there can be an increase in aggregate demand without an increase in the general level of prices.
C) In the short run there can be an increase in the general level of prices when there is no change in aggregate supply.
D) In the long run there can be an increase in the general level of prices when there is no change in aggregate supply.

Question

Quizplus · Accepted Answer

In the new classical model, it is generally accepted that in the long run, an increase in aggregate demand leads to an increase in the general level of prices rather than an increase in output. This is because, in the long run, the economy is viewed as operating at or near its full capacity, so any increase in demand primarily causes prices to rise rather than increasing the actual quantity of goods and services produced.

Which of the Following Statements About Aggregate Demand and Supply