If the economy is in macroeconomic equilibrium with a vertical AS curve,and then aggregate demand increases,we expect the AE function to shift to a
A)higher level and stay there.
B)higher level,but then shift part of the way down to its original position as the price level rises.
C)higher level but then return to its original position as the price level rises.
D)lower level and stay there.
E)lower level,but then return to its original position as the price level rises.

Question

Quizplus · Accepted Answer

When the economy is in macroeconomic equilibrium with a vertical Aggregate Supply (AS) curve, an increase in Aggregate Demand (AD) leads to a higher price level without changing the output level. The Aggregate Expenditure (AE) function initially shifts to a higher level due to increased demand. However, as prices rise, the real value of money decreases, reducing consumption and investment, which causes the AE function to return to its original position.

If the Economy Is in Macroeconomic Equilibrium with a Vertical