The analysis of the short-run and long-run Phillips Curve suggests that an increase in aggregate demand:
A) Influences real output and employment in the long run, but not in the short run
B) Influences real output and employment in the short run, but not in the long run
C) Does not influence the price level in the short run or the long run but only real output and employment
D) Does not influence real output and employment in the short run or the long run but only the price level

Question

Quizplus · Accepted Answer

In the short run, an increase in aggregate demand shifts the short-run Phillips Curve upward, leading to higher prices and output. However, in the long run, prices adjust fully, and the economy returns to its natural rate of unemployment. Therefore, in the long run, an increase in aggregate demand only affects the price level, not real output or employment.

The Analysis of the Short-Run and Long-Run Phillips Curve Suggests