If the current short-run equilibrium level of output is greater than full employment output,we can then expect that in the long run:
A) the price level will rise and short-run aggregate supply will fall.
B) the price level will rise and aggregate demand will fall.
C) the price level will fall and short-run aggregate supply will rise.
D) the price level will fall and aggregate demand will rise.
E) the long-run aggregate supply will increase.

Question

Quizplus · Accepted Answer

In the long run, if output exceeds full employment, the economy is producing beyond its sustainable capacity, leading to upward pressure on prices (inflation). As prices rise, short-run aggregate supply decreases due to higher production costs.

If the Current Short-Run Equilibrium Level of Output Is Greater