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24 November, 16:38

Will a shift in demand have more impact on gdp in the short-run or the long-run

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  1. 24 November, 19:28
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    Long run.

    There is something called the multiplier effect. It is when there are injections, the overall change in national income would be proportionately greater.

    Aggregate demand is made up of 4 components:

    1 Consumption

    2 Investment

    3 Government Spending

    4 Net Exports

    Three of which are injections. (2,3 and 4)

    As there are injections, in the future, it is likely that multiplier effect would increase the national output even more.

    So, in the long term, as multiplier effect takes its effect (look on tutor2u to see examples), the nominal GDP increases further.
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