In the classical model, a rightward shift in the aggregate demand curve will, in the long run,
A) increase real GDP and the price level.
B) increase real GDP and will not change the price level.
C) decrease real GDP and will not change the price level.
D) not change real GDP and will increase the price level.

Question

Quizplus · Accepted Answer

In the classical model, the economy is always at full employment due to the flexibility of prices and wages. Therefore, a rightward shift in the aggregate demand curve will not change real GDP (which is determined by the supply side factors like labor, capital, and technology) but will increase the price level due to the higher demand.

In the Classical Model, a Rightward Shift in the Aggregate