What is the impact when AD shifts permanently to the right?
A)Cyclical unemployment will be lower in the short run than in the long run.
B)LRAS will shift in response to the expansionary gap.
C)Real output will rise in the short run but not in the long run.
D)The price level will rise in the short run but not in the long run.

Question

Quizplus · Accepted Answer

When aggregate demand (AD) shifts permanently to the right, real output increases in the short run due to higher demand. However, in the long run, the economy returns to its potential output level, and the increase in demand primarily results in a higher price level rather than a sustained increase in real output.

What Is the Impact When AD Shifts Permanently to the Right