The economy is in long-run equilibrium when there is a correctly anticipated increase in aggregate demand.According to new classical theory,the price level will __________ and Real GDP will __________.

Question

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According to new classical theory, a correctly anticipated increase in aggregate demand will lead to an increase in the price level and no change in Real GDP. This is because firms will increase production in response to the increase in demand, but will eventually face higher input costs due to the higher price level. This leads to an increase in output prices, but no change in Real GDP.

The Economy Is in Long-Run Equilibrium When There Is a Correctly