An increase in investment causes the price level to ________ in the short run and ________ in the long run.
A)increase; increase further
B)increase; decrease
C)decrease; decrease further
D)decrease; increase
E)increase; stagnate

Question

Quizplus · Accepted Answer

An increase in investment increases aggregate demand, which leads to an increase in the price level in the short run. In the long run, the increase in investment leads to an increase in the productive capacity of the economy, which shifts the aggregate supply curve to the right and decreases the price level.

An Increase in Investment Causes the Price Level to ________