Consider an economy starting from a position of full employment. Which one of the following changes does not occur as a result of an increase in aggregate demand?
A)The price level rises.
B)Real GDP increases in the short run.
C)An inflationary gap arises.
D)Factor prices rise in the long run, shifting the short-run aggregate supply curve to the left.
E)The long-run aggregate supply curve shifts rightward to create the new long-run equilibrium.

Question

Quizplus · Accepted Answer

In the long run, the economy returns to full employment, but the long-run aggregate supply curve does not shift rightward due to an increase in aggregate demand. Instead, factor prices adjust, and the short-run aggregate supply curve shifts leftward to restore equilibrium.

Consider an Economy Starting from a Position of Full Employment