An increase in aggregate demand has what outcome on price level and output with respect to long-run equilibrium?

A) real GDP will increase and price level will decrease

B) real GDP will decrease and price level will increase

C) real GDP will remain the same and price level will decrease

D) real GDP will remain the same and price level will increase

Question

Advanced Placement (AP)

Max

28 June, 13:32

An increase in aggregate demand has what outcome on price level and output with respect to long-run equilibrium?

A) real GDP will increase and price level will decrease

B) real GDP will decrease and price level will increase

C) real GDP will remain the same and price level will decrease

D) real GDP will remain the same and price level will increase

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Answers (1)

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Brenton · Answer 1

D) real GDP will remain the same and price level will increase

Explanation:

The long-run equilibrium is at the aggregate demand curve and the long-run aggregate supply curve. Since the long-run supply curve is vertical, the output does not change. Therefore, when the entire demand curve shifts to the right, the real GDP remains the same, but the price level increases.