An increase in aggregate demand results in a(n)________ in the ________.
A)recession; long run
B)expansion; long run
C)expansion; short run
D)recession; short run

Question

Quizplus · Accepted Answer

An increase in aggregate demand leads to an expansion in the short run, as firms increase production and employment to meet the higher demand. However, in the long run, prices and wages adjust, causing the aggregate supply curve to shift leftward, leading to higher prices and ultimately a return to the original level of output. So, a short-run expansion caused by an increase in aggregate demand might be followed by a long-run recession.

An Increase in Aggregate Demand Results in A(n)________ in the ________

An Increase in Aggregate Demand Results in A(n) in the