In the Long Run, an Increase in Aggregate Demand from a Position

question 98

Multiple Choice

In the long run, an increase in aggregate demand from a position of full employment leads to:

• A) higher prices and higher output.
• B) higher prices and the same output.
• C) higher output and lower prices.
• D) higher output and higher unemployment.

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Definitions:

Wage Rates

The standard amount of compensation a worker receives for labor, typically expressed per hour, day, or piece.

Sticky Downward

Describes prices or wages that are resistant to decrease even in conditions where economic theory suggests they should fall, contributing to slow adjustments in markets.

Long-run Aggregate Supply

Long-run aggregate supply represents the total output of goods and services that an economy can produce when it is operating at full capacity, unaffected by the price level in the long term.

Resource Prices

The costs associated with procuring the natural, human, and capital resources needed for producing goods and services.