Answer to Question #308503 in Macroeconomics for Jackey

Question

The interaction between AS and AD over the long run is more complex. It entails that, over a period of time, the adjustments (shifts) that are set in motion tend to lead the economy and , more specifically production and employment, to a cyclically stable or cyclically neutral level of full or saturated employment. True or False

Answer 1

True. Because an increase of both AD and AS increase, the real GDP will increase. The effect of the increment on inflation will, however, depend on the magnitude of the changes. Note that an increase in AD will increase the price level. On the other hand, an increase in AS will decrease the price level.