Suppose the economy is operating in long-run equilibrium and a positive demand shock hits.We expect a short-run increase in real GDP and the price level and a long-run _____ in real GDP and _____ in the price level.
A) decrease;increase
B) increase;increase
C) decrease;decrease
D) increase;decrease

Question

Quizplus · Accepted Answer

In the long run, the economy returns to its potential output, so real GDP decreases back to its original level. However, the price level remains higher due to the initial demand shock, leading to an increase in the price level.

Suppose the Economy Is Operating in Long-Run Equilibrium and a Positive