In the short run, output increases with the price level, but not in the long run.

Question

Quizplus · Accepted Answer

In the short run, an increase in the price level can stimulate output and production as firms increase their output to meet the higher demand for their goods and services. However, in the long run, the increase in price level can lead to higher input costs and wages, leading to a decrease in production and output. Additionally, in the long run, output is determined by factors such as technology, capital stock, and labor force, which are not affected by changes in the price level.

In the Short Run, Output Increases with the Price Level