208k views
4 votes
Consider the basic AD/AS macro model. An expansionary AD shock would have ________ output effect in the short run and ________ output effect in the long run.

A) a positive; a positive
B) no; a positive
C) no; no
D) a positive; no
E) not enough information to know

User RhysD
by
7.8k points

1 Answer

4 votes

Final answer:

In the basic AD/AS macro model, an expansionary AD shock would have a positive output effect in the short run and no output effect in the long run.

Step-by-step explanation:

Considering the basic AD/AS macro model, an expansionary AD shock would have a positive output effect in the short run because a shift to the right of the AD curve leads to a greater real GDP and potentially higher prices, especially if the economy is not at full employment. This is because the short-run aggregate supply (SRAS) curve is upward sloping, indicating that prices and output can both increase. However, in the long run, the output effect would be no, assuming that the economy reaches its full employment level with a vertical long-run aggregate supply (LRAS) curve. At this point, any further shifts in the AD curve would only cause higher prices (inflation) without affecting output.

User Adibender
by
7.2k points