The correct option is a. An increase in the aggregate demand for goods and services has a larger impact on output in the short run and a larger impact on the price level in the long run.
Aggregate demand is the whole of the goods that consumers in an economy demand. In contrast to microeconomics, aggregate demand is a macroeconomic term.
The primary factor influencing supply and demand in the economy is the cost of goods and services. But the opposite is also true: shifts in supply and demand have an effect on how much products and services cost. The relationship between overall price levels and total demand is not always obvious or direct. In contrast, an increase in aggregate demand generally (and under ceteris paribus circumstances) results in an increase in the price level. When the components of aggregate demand—consumption spending, investment expenditure, government spending, and spending on exports less imports—increase, so does aggregate demand.
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An increase in the aggregate demand for goods and services has a larger impact on output ________ and a larger impact on the price level ________.
a. in the short run, in the long run
b. in the long run, in the short run
c. in the short run, also in the short run
d. in the long run, also in the long run
