If the aggregate demand curve shifts in the short run moving the economy out of long-run equilibrium:
A) the short-run aggregate supply curve will shift to bring it back into long-run equilibrium.
B) the aggregate demand curve will eventually shift back once expectations are taken into account.
C) inflation will always occur.
D) we will move along the short-run aggregate supply curve back to equilibrium.

Question

Quizplus · Accepted Answer

If the aggregate demand curve shifts in the short run and moves the economy out of long-run equilibrium, the short-run aggregate supply curve will shift to bring it back into long-run equilibrium. This is because in the short run, prices may be sticky and unable to adjust quickly to changes in demand, but in the long run, prices are more flexible and can adjust to restore equilibrium. Therefore, the short-run aggregate supply curve must shift to reflect changes in prices and output to bring the economy back to long-run equilibrium.

If the Aggregate Demand Curve Shifts in the Short Run