According to the new classical approach, an increase in aggregate demand in the long run would lead to an increase in:
A) total output and the price level.
B) total output with no change in the price level.
C) the price level with no change in total output.
D) all of the above.

Question

Quizplus · Accepted Answer

According to the new classical approach, in the long run, the economy is at full employment, and an increase in aggregate demand would primarily lead to an increase in the price level rather than an increase in total output. This is because in the long run, output is determined by factors such as technology, resources, and labor, rather than by aggregate demand.

According to the New Classical Approach, an Increase in Aggregate