Suppose the government increases aggregate demand to a level that increases GDP

Question

Suppose the government increases aggregate demand to a level that increases GDP above its long-run equilibrium level. What sequence of events would follow? A)price rise; GDP increases; workers demand higher wages; short-run aggregate supply shifts to the left; GDP drops b) Prices fall; workers receive lower wages; shor-run aggregate supply shifts to the right; GDP rises c) Prices rise; GDP increases; workers demand higher wages; long-run aggregate supply shifts to the left; GDP falls d) Prices fall; workers receive lower wages; aggregate supply shifts to the right; GDP rises

Explanation / Answer

Suppose the government increases aggregate demand to a level that increases GDP above its long-run equilibrium level. What sequence of events would follow?

c) Prices rise; GDP increases; workers demand higher wages; long-run aggregate supply shifts to the left; GDP falls

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