If the government increases aggregate demand when the economy is at both short-run and long-run equilibrium,the full long-run effect of this fiscal policy will be to

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If the government increases aggregate demand, it will shift the AD curve to the right, causing an increase in real GDP and the price level in the short run. However, in the long run, the increase in AD will result in higher wage and resource costs, causing firms to increase their prices, leading to inflation. Thus, the full long-run effect of the fiscal policy will be an increase in the price level.

If the Government Increases Aggregate Demand When the Economy Is