If the economy is in long run equilibrium and then aggregate demand increases, in the long run the increase in aggregate demand means that the
A) price level will be higher but real GDP will be unaffected.
B) real GDP will be larger but the price level will be unaffected.
C) the price level will be higher and real GDP will be larger.
D) neither the price level nor real GDP will be unaffected.

Question

Quizplus · Accepted Answer

In the long run, an economy adjusts to increases in aggregate demand through changes in the price level while real GDP returns to its long-run potential level. This means that while prices may rise, the real GDP remains unchanged from its full-employment level.

If the Economy Is in Long Run Equilibrium and Then