According to the natural-rate hypothesis, fluctuations in aggregate demand affect output in:
A) both the short run and the long run.
B) only in the short run.
C) only in the long run.
D) in neither the short run nor the long run.

Question

Quizplus · Accepted Answer

The natural-rate hypothesis suggests that in the long run, changes in aggregate demand only affect the price level, but not output. However, in the short run, fluctuations in aggregate demand can have an impact on output, as prices may not fully adjust immediately.

According to the Natural-Rate Hypothesis, Fluctuations in Aggregate Demand Affect